Pita Ltd is a wholesaler of pita bread, and the company has a financial year ending on 31 December.

Pita Ltd bought equipment to manufacture pita bread from PT Distributors on 30 June 20x18 for R1 300 000 cash. Commission to the amount of R26 000 was paid to Agent Ltd for negotiating this transaction.

Due to an increased demand for pita bread, Pita Ltd purchased new equipment from PTDistributors on 1 January 20x20. The equipment was acquired for R1 600 000 and was paid in cash on the same day. Pita Ltd expects that with the new equipment, 45% more pita bread will be manufactured than with the current equipment. Commission amounting to R30 000 was paid to Agent Ltd. The company calculates depreciation on property, plant and equipment on the straight-line method over their estimated useful lives, which agrees with the tax allowances granted by the South African Revenue Service. The estimated useful life of the equipment is five years and the residual value is Rnil.

Pita Ltd's directors decided to enter into a lease agreement with Bake Ltd. On 1 May 20x20, the equipment bought originally on 30 June 20x18 was leased to Bake Ltd, as Pita Ltd no longer had any use for it. The fair value of the equipment was R850 000 on this date. The lease agreement contains a lease in terms of IFRS 16, Leases.

The terms of the lease agreement are as follows:

Term of the lease: ......................................................................................................................... Instalment: ..................................................................................................................................... Instalment to be paid: .................................................................................................................... First payment to be made on: ....................................................................................................... Last payment to be made on:........................................................................................................ Ownership will be transferred to the lessee at the end of the lease term at no additional cost.

3 years R75 583 Every 6 months 1 October 20x20 30 April 20x23

The profit before tax for the year after the abovementioned transactions have been taken into account is R3 000 000. The normal SA income tax rate is 28%. There are no temporary or exempt differences other than those evident from the information provided.

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Learning unit 3: Topic 3.2 Leases: Lessor accounting Activity 3.6

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REQUIRED

Marks

(a) Disclose the above information as it would appear in the notes to the annual financial statements of Pita Ltd for the year ended 31 December 20x20.

The following notes need NOT be disclosed: Accounting policies

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Deferred tax

Income tax expense

Categories of financial liabilities disclosure in terms of IFRS 7: Financial Instruments: Disclosure

Categories of financial assets disclosure in terms of IFRS 7: Financial

Instruments: Disclosure

(b) Calculate the normal SA tax expense of Pita Ltd for the year ended 13 31 December 20x20. Include proof of the deferred tax movement for the year

in your calculation.