Exam (elaborations)
FAC3703 Assignment 1 (COMPLETE ANSWERS) Semester 2 2024 - DUE 7 September 2024
- Course
- Specific Financial Reporting
- Institution
- University Of South Africa
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FAC3703 Assignment 1(COMPLETE ANSWERS)
Semester 2 2024 - DUE 7
September 2024
100% GUARANTEED
, FAC3703 Assignment 1 (COMPLETE ANSWERS)
Semester 2 2024 - DUE 7 September 2024
Ozone Ltd Ozone Ltd is neither a manufacturer nor a
dealer that leases ozone friendly machinery that reduces
the emission of harmful chemicals. Ozone has a 28/29
February year-end. As part of its business strategies,
Ozone Ltd entered into the following transactions:
Transaction 1 Ozone Ltd entered into an agreement with
Woodworks Ltd in which Ozone Ltd leased machinery to
Woodworks Ltd. The contract between the two companies
contains a lease in terms of IFRS 16, Leases. Ozone Ltd
purchased this machine on 1 March 2023 at a cost of
R420 000. FAC3703/02/2024 The lease agreement for the
machine is as follows: Fair value of the machine on 1
March 2023 R420 000 Lease commencement date 1
March 2023 Lease instalments payable bi-annually in
arrears on 31 July and 28 February R90 000 Guaranteed
residual value at the end of the lease term R15 000
Unguaranteed residual value at end of the lease term R5
000 Lease term 3 years Initial direct costs incurred by
Ozone Ltd R10 000 Initial direct costs (Legal Fees)
incurred by Woodworks Ltd R15 000 Woodworks Ltd will
take ownership of the machinery at the end of the lease
term upon payment of the guaranteed residual value. The
machinery has a useful life of 5 years at the beginning of
the lease term and a Rnil residual value. The profit before
tax of Woodworks Ltd for the year ended 29 February
2024 amounted to R1 500 000 before the lease
transaction was taken into account. Assume the deferred
tax balance at 1 March 2023 was Rnil. For tax purposes,
the legal fees incurred by Woodworks Ltd are not
regarded as expenses as it was not incurred in the
production of income and is capital in nature. Transaction
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