PART A: $(17$ Marks$)$

Chuba Farm is one of the country$$s leading suppliers of cows and dairy products. As the company has grown substantially

over the past few years, the CEO is constantly looking for ways to speed up the production process. Chuba Farms has

identified Pasitech Limited as a supplier of machinery that could assist in speeding up the production process. The following

items are pertinent:

Chuba Farm will enter into a contract for the lease of a specialised machinery with Pasitech Limited that will automate the

entire packaging process. The terms of the lease agreement stipulate the following:

$$ The start date of the lease is $1$ January $2019.$

$$ The lease is non$-$cancellable.

$$ Chuba Farm will make all decisions on how to use the machine.

$$ The lease term is $4$ years, with arrear annual payments of R $369800.$

$$ The machine is expected to have a useful life of four years, with no residual value.

$$ The market value of the machine is R $1055771.$

$$ The implicit interest rate is $15\%$

The following tax related information also applies:

$$ Profit before tax, and before any adjustments relating to the above information is R$800000.$

$$ The Tax Authority recognises this lease as a rental agreement, and thus allows the lease instalment as a deduction

when paid$$

$$ There are no differences between accounting and taxable profit other than those evident in the question$$

$$ The tax rate is $30\%$

$$ Ignore VAT.

Required:

Prepare the journal entries for the year ended $31$ December $2019$ in relation to the above lease, using the General

Approach.

PART B $(8$ marks$)$

In order to automate the point$-$of$-$sale process, Ithala Limited entered into a contract with Blade Limited for the Lease of $12$

Laptops. The commencement date of the lease is $1$ May $2019,$ and the duration of the lease is for a two$-$year period. Each

item is of low value and Ithala Limited applies the low value exemption of IFRS $16.$

The lease agreement stipulates the following amounts to be paid over the lease term:

$$ From $1$ May $2019-30$ April $2020$: R$4000$ per month

$$ From $1$ May $2020-30$ April $2021$: R$6000$ per month.

In addition to the lease payments, the lessee is required to pay a monthly amount of R$1500$ per month for servicing of the

laptops as well as variable lease payment equal to $1\%$ of sales per annum. The annual sales as at $31$ December $2019$ is R$4$

$825000.$

Required:

Prepare the journal entries for the year ended $31$ December $2019$ in relation to the above.

Ensure all workings are included.

PART C $(5$ Marks$)$

List the $5$ criteria that, individually or in combination, could lead to a lease being classified as a finance lease under Lessor

accounting.