[Date]
FAC3703 Assignment 1
Semester 2 2024 - DUE
7 September 2024
QUESTIONS WITH COMPLETE ANSWERS
, 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
FAC3703 Assignment 1
Semester 2 2024 - DUE
7 September 2024
QUESTIONS WITH COMPLETE ANSWERS
, 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
