1. General

Performance Ltd is a company in the armament manufacturing industry with a 28 February year-end.

2. Machinery

Performance Ltd used the R-Series Machine in the manufacturing of high performance weapons. On 1 June 2020 the directors of Performance Ltd decided that the number of units manufactured by the company would be increased due to a higher demand for their weapons. Due to the limited capacity of the R-Series Machine, it was decided that the machine would be replaced with a more technologically advanced and more efficient machine. The R-Series Machine was originally acquired on 1 January 2018 for R15 000 000, and its residual value has consistently been reliably measured at Rnil. It is the policy of Performance Ltd to depreciate machinery over its useful life of 6 years using the straight-line method. The R-Series Machine was used until the commencement of the lease agreement as mentioned in point 3 below.

3. Lease agreement

Following the purchase of an advanced machine, Performance Ltd had no use for the R-Series Machine and the directors decided to lease the machine to Ultima Ltd. The machine is of such a specialised nature that only Ultima Ltd can use the machine without modifications. The agreement between Performance Ltd and Ultima Ltd contains a lease in terms of IFRS 16, Leases. The terms of the lease agreement are as follows:

Lease commencement date	1 July 2020
Fair value of R-Series Machine on 1 July 2020	R12 000 000
Instalments payable six monthly in arrears starting on 31 December 2020	R2 500 000
Lease term	3 years

Performance Ltd incurred legal fees of R10 000 for drafting the lease agreement. Although ownership of the R-Series Machine will not transfer to Ultima Ltd at the end of the lease, the risks and rewards incidental to ownership of the machine were transferred to Ultima Ltd for the duration of the lease term. The lease agreement was entered into at a market related interest rate.

Ownership of the R-Series Machine will pass to Optimum Ltd at the end of the lease term, upon the payment of a residual value of R100 000 by Optimum Ltd. Optimum Ltd is related to Performance Ltd.

Required:

(a) Disclose the above lease transaction in the following notes to the annual financial statements of Performance Ltd for the year ended 28 February 2021:

 Profit before tax

 Property, plant and equipment

 Leases (excluding disclosure in terms of IFRS 7, Financial Instruments: Disclosures)