QUESTION 4 (35 marks) (42 minutes)

A manufacturing company, Samcon Ltd, entered into a contract on 1 January 2019, whereby a robotics-arm with a total cash selling price and fair value of R850 000 would be leased from Fanuk Ltd. The contract is a lease in terms of IFRS 16 Leases. The robotics-arm is used in their manufacturing process to speed up their manufacturing time, producing more units per hour. The lessor did not incur any initial direct costs. Samcon Ltd paid R30 000 legal fees for negotiating the lease. For tax purposes, the legal fees incurred by Samcon Ltd are of a capital nature.

The period of the lease is three years and the lease payments of R98 500 are payable quarterly in arrears. Samcon Ltd will obtain ownership of the robotics-arm at the end of the lease term at no additional cost. The interest rate implicit in the lease is 21.91% per annum.

The profit before tax of Samcon Ltd for the year ended 31 December 2019 before the above lease transactions, amounted to R550 000. The robotics-arm have a Rnil residual value and will be depreciated over the expected useful live of four years according to the straight-line method of depreciation.

The company's reporting period ends on 31 December each year.

REQUIRED: Marks (a) Prepare the journal entries of Samcon Ltd to account for the abovementioned lease for the financial year ended 31 December 2019. (b) Prepare the relevant notes to the financial statements of Samcon Ltd at 31 December 2019 to disclose the above lease. 16 19 [35]