FAC3703 Assignment 1
Semester 2 2024 - DUE 7
September 2024
QUESTIONS WITH COMPLETE ANSWERS
[School]
[Course title]
, FAC3703 Assignment 1 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
2 Ozone Ltd entered into a lease agreement on 1 March 2024 to lease a delivery vehicle from
VehiclesRus Ltd. The lease contractual terms result in a non-cancellable term of 12 months, with
no option to purchase, and an option to extend for a further six months. Given that the rentals in
Semester 2 2024 - DUE 7
September 2024
QUESTIONS WITH COMPLETE ANSWERS
[School]
[Course title]
, FAC3703 Assignment 1 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
2 Ozone Ltd entered into a lease agreement on 1 March 2024 to lease a delivery vehicle from
VehiclesRus Ltd. The lease contractual terms result in a non-cancellable term of 12 months, with
no option to purchase, and an option to extend for a further six months. Given that the rentals in
