FAC3703 ASSIGNMENT 1 SEMESTER 1 2024

FAC3703 ASSIGNMENT 1 SEMESTER % TRUSTED workings, explanations and solutions. For assistance call or us on . H20 Ltd H20 Ltd is a company that produces and bottles natural spring water and sparkling water. What influences the taste of the water? Both the source of the spring as well as the delicate balance of pH and mineral content, contribute to the taste of water. H20 Ltd products have been on a high demand recently and to keep with the demand they have decided to the expand operations. H20 Ltd will be leasing a new machine to help with the production of the new alkaline range and issuing convertible debentures to assist with the increased demand. H20 Ltd has a 31 July year end. 1. Lease of machine On 1 August 2022, H20 Ltd entered into a contract with AlkalineNow Ltd to lease a machine from AlkalineNow Ltd. The contract between the two companies contains a lease in terms of IFRS 16, Leases. The lease agreement for the machine is as follows: Fair value of machine on 1 August 2022 R Lease commencement date 1 August 2022 Bi-annual instalments payable in arrears (starting on 31 January 2023) R485 010 Guaranteed residual value at the end of the lease R50 000 FAC3703/101/3/2023 17 Unguaranteed residual value at the end of the lease R10 000 Lease term 3 years H20 Ltd will take ownership of the machine at the end of the lease term after payment of the guaranteed residual value. H20 Ltd paid R14 000 legal fees and AlkalineNow Ltd R8 000 commission to Water Brokers for drawing up the lease agreement. It is the policy of H20 Ltd to depreciate property, plant and equipment over their estimated useful lives, which is in agreement with the allowances granted by the South African Revenue Service. The useful life of machines is six years with a residual value of Rnil. The profit before tax of H20 Ltd amounted to R before the above transactions were taken into account. There were no other temporary differences other than those mentioned above. 2. Convertible Debentures H20 Ltd has decided to issue convertible debentures to assist in funding the expansion. H20 Ltd issued 5 600 convertible debentures on 1May 2023. The debentures have a three-year term and are issued at par value (equivalent to the fair value of the debentures) of R550 per debenture. On 30 April 2026, each debenture is convertible into 90 ordinary shares. The debentures are convertible into shares at the end of the term or can be redeemed at face value of R550 each at the option of H20 Ltd. Coupon payments of 12,5% per annum on the convertible debentures will be made annually on 30 April of each year. On the date on which the debentures were issued the prevailing market interest rate for similar debt instruments without a conversion option was 14,75% per annum. Each convertible debenture had a fair value of R650 on 30 April 2024, R655 on 30 April 2025 and R680 on 30 April 2026. REQUIRED: Marks (a) Prepare the current tax expense note and the leases notes (noted below) in the financial statements of H20 Ltd for the financial year ended 31 July 2023 in respect of the lease transaction in point 1, in accordance with International Financial Reporting Standards (IFRS): - Right of use asset - Maturity analysis of the finance lease payments 16 (b) Prepare journal entries required to account for the convertible debentures in point 2 in the accounting records of H20 Ltd for the year ended 31 July 2023 and 31 July 2026.