Megatech Limited is a company with a $28$ February year$-$end. The company was party

to the following agreements for the $28$ February $2023$ financial year:

Machine lease agreement

On $1$ March $2022,$ Megatech Limited entered into a lease agreement with Ventura

Limited. In terms of the agreement, Megatech Limited will rent an industrial machine

from Ventura Limited.

The cash selling price of the machine is R$500000,$ and Megatech Limited will pay

Ventura Limited $5$ lease payments of R$129517$ each, payable in arrears on

$28$ February. The machine will be returned to Ventura Limited at the end of the lease

term. No initial direct costs were incurred by either of the parties.

On $1$ March $2022,$ the machine had a carrying amount of R$500000$ in Ventura

Limited$$s records and the original cost of the machine was R$750000.$ Ventura Limited

is not a manufacturer or a dealer, and you can assume that the lease agreement is a

finance lease for Ventura Limited.

In terms of the lease agreement, Megatech Limited has provided a residual value

guarantee of R$50000$ to Ventura Limited, therefore if Ventura Limited is unable to sell

the machine for at least R$50000$ at the end of the lease term, Megatech Limited will

pay any shortfall to Ventura Limited.

On $1$ March $2022,$ Megatech Limited did not expect to make a payment under the

residual value guarantee due to Ventura Limited reasonably expecting to sell the

machine for R$70000$ at the end of the lease term.

$3$ HFAC$334-1-$Jan$-$Jun$2023-$SA$1-$CP$-$V$4-02122022$

Office printer lease agreement

Megatech Limited required the use of an additional office printer, and instead of buying

a printer, they decided to enter into a lease agreement to rent a printer from a third

party.

The lease term is from $1$ November $2022$ to $30$ October $2024.$ During the first year,

Megatech Limited will pay a monthly rental of R$3000.$ Megatech Limited also has the

option to extend the lease period for a further two years, and Megatech Limited

indicated that they would exercise this option. The rental amount will escalate by $6\%$

on $30$ October each year for both the initial and the extended terms.

The printer was new when Megatech Limited's lease started. The printer has a

purchase price of R$20000$ and an expected useful life of $6$ years.

$4$ HFAC$334-1-$Jan$-$Jun$2023-$SA$1-$CP$-$V$4-02122022$

REQUIRED:

$1\mathrm{.}1$ With reference to the Machine lease agreement, prepare the journal entries

required in the records of Ventura Limited for the financial year ended

$28$ February $2023.$ Dates and narrations are not required.

$(15$ marks$)$

$1\mathrm{.}2$ With reference to the Machine lease agreement and the requirements of

IFRS $16,$ briefly discuss how Megatech Limited should treat the guaranteed

residual value included as part of the lease agreement.

$(4$ marks$)$

$1\mathrm{.}3$ With reference to the Machine lease agreement, prepare an extract from the

Statement of Profit or Loss and Other Comprehensive Income of Megatech

Limited for the year ended $28$ February $2023.$ Comparative figures and note

disclosures are not required.

$(11$ marks$)$

$1\mathrm{.}4$ The Financial Manager of Megatech Limited enquired whether there is a

possibility of not applying all the requirements of IFRS $16$ to the Office printer

lease agreement.

With reference to the Office printer lease agreement, advise the Financial

Manager of the possibility of not applying all the requirements of IFRS $16.$

Include in your discussion the journal entries that Megatech Limited would be

required to process in their records to account for the office printer lease for the

financial year ending $28$ February $2023$ if there is a possibility of not applying

all the requirements of IFRS $16.$

Mark allocation:

$$ Discussion $(15$ marks$)$

$$ General journal entries and calculations $(10$ marks$)$

Dates and narrations relating to the journal entries are not required.