Oshimbala Foods Ltd is a fast food company that operates many outlets across the country. The reporting period of Oshimbala Foods Ltd ends on 31 October. Oshimbala Foods Ltd is not registered as a VAT vendor. MATTER 1

On 1 November 2014 Oshimbala Foods Ltd purchased equipment with an invoice price of N$ 273 600 under a lease agreement. The lease payments will consist of equal annual instilments over a period of 4 years, payable in arrears. The interest rate applicable on this lease agreement is 8% per year. All payments due have been paid on time each year. The equipment is depreciated on the straight line basis over 5 years with no residual value.

Required:

Disclose the long term borrowings note applicable to the lease liability in the Statement of Financial Position of Oshimbala Foods Ltd on 31 October 2016 in accordance with International Financial Reporting Standards. (20 Marks) Note: Round disclosed amounts to the nearest Dollar.

MATTER 2

On 1 January 2016 Oshimbala Foods Ltd signed a 3-year rental agreement on a new outlet to be opened in Maruua Mall. The business was able to negotiate a very good deal on this 3-year rental agreement. For the first year of the agreement, Oshimbala Foods Ltd will not have to pay any rent on the outlet. In the second year of the contract, the business will pay N$ 2 500 rental per month and in the third (last) year of the agreement Oshimbala Foods Ltd will pay N$ 5 000 per month. The accountant of Oshimbala Foods Ltd did not recognize any entries in the accounting records of the business for the period ended 31 October 2016 since no payments had to be made during the first year of the agreement.

Required:

a) Explain whether the accountant of Oshimbala Foods Ltd was correct in not recording any journal entries on the rental agreement for the period ended 31 October 2016 in accordance with International Financial Reporting Standards. (5 Marks)

b) Provide the journal entry (if any) to appropriately account for the rental agreement in the accounting records of Oshimbala Foods Ltd for the reporting period ended 31 October 2016. (5 Marks) (Total 30 MARKS)