Question $3(35$ Marks$)$

Delivery Vehicles

On $01$ March $2017($commencement date$),$ Granny Limited purchased four delivery vehicles in terms of a single lease

contract. The fair value of each vehicle was R$422500$ on this date. All of these vehicles were available for use as

intended by management immediately.

The lease payments payable annually in arrears amount to R$675990$ each. The first such payment is payable on $28$

February $2018.$ The lease terminates on $28$ February $2020.$There is an option to acquire ownership of the delivery

vehicles at the end of the lease term and if this option is exercised, R$1$ per vehicle will need to be paid to the lessor.

On $28$ February $2020$ Granny Limited will pay an additional amount of R$25000$ per vehicle to the lessor together with the

last payment.

Granny Limited incurred initial direct costs of R$15000$ related to the lease. The lessor also incurred initial direct costs but

Granny Limited does not have access to this information.

Granny Limited$$s incremental borrowing rate is $12\mathrm{.}5\%$ per year.

At the inception of the lease there was no reasonable certainty that Granny Limited would exercise the option to acquire

ownership of the delivery vehicles at the end of lease term.

The useful life of each delivery vehicle is estimated to be eight years at the inception of the lease.

Granny Limited has a February year end.

Required: Prepare journal entries that Granny limited would pass in terms of IFRS$16$ for the entire lease period.