QUESTION ONE [33]

Calwart Limited enters into a contract with Property 123 Limited for the lease of three floors of an office building. The exact floors are specified in the contract and Property 123 Limited is not permitted to relocate tenants to other floors of the building. The commencement date of the lease is 1 July 2020 and the duration of the lease is for five years with the option to extend for a further five years. Calwart Limited is reasonably certain to exercise the option to extend the lease. The lease payments are R50 000 per annum during the initial term and R55 000 per annum during the optional term, all payable in advance. Calwart Limited incurred initial direct costs of R20 000, comprising R15 000 as compensation to the tenant formerly occupying the three floors and R5 000 as agents commission. These are paid on 1 July 2020. Property 123 Limited agrees to reimburse the R5 000 agents commission. The interest rate implicit in the lease is not readably determinable. Calwart Limited 's incremental borrowing rate is 5% per annum.

Required: 1. Calculate the amount to record as the initial lease liability and right of use asset (11) 2. Prepare the journal entries in the accounting records of Calwart Limited for the year ended 30 June 2021 and 30 June 2022 (22)

QUESTION TWO [20]

Acator Limited is a reputable manufacturer within the toy industry. The company has recently been involved in a drive to supply toys to underprivileged children. Acator was awarded a government grant of R600 000 and deposited the cash cheque into its bank account on the same date it was received (1 March 2020). An excerpt from the letter confirming the granting of the award is presented below. Dear Sirs We have pleasure in presenting you with the attached cheque in the amount of R600 000, all conditions for the grant having been met. This amount is to be used follows: 1. R360 000 may be used to acquire the extra machine required 2. R240 000 is to assist with the general cash flows related to production. We wish you the best with your future toy drives and know the children you help are grateful. Sincerely Joyce Acator immediately purchased the machine at a cost of R1 080 000. The machine has a useful life of 3 years and at the end of its useful life, Acator expects to sell if for R60 000 as scrap metal. The straight-line smethod of depreciation is appropriate.

REQUIRED Prepare the journal entries in the books of Acator Limited for the years ended 28th February 2020, 28th February 2021 and 28th February 2022.

QUESTION THREE [20]

Snuggles Limited is a South African company that sells luxurious duvets. Snuggles Limited sold a batch of duvets to a Scottish company for 60 000 euros. Details relating to the duvets, which were shipped free on board (FOB), are as follows: 10 April 2021 Received the order from the Scottish company. 1 August 2021 Duvets were loaded onto a ship in South Africa 10 August 2021 Duvets were offloaded in Scottish Snuggles Limited had the duvets in stock at the time of the order, the cost thereof being R204 000. Snuggles functional and presentation currency is the South African Rand (ZAR). Related exchange rates are as follows: Date ZAR Euro 1 10-Apr-21 18,8 1 01-Aug-21 18 1 10-Aug-21 18,3 1 01-Nov-21 18,45 1 31-Dec-21 18,2 1 01-Feb-22 19,7 1 Spot Rate On the 1 November 2021, the Irish company paid Snuggles Limited 50% of the amount due and paid the balance on the 1st of February 2022.

Required: Prepare the journal entries in the books of Snuggles Limited for its years ended 31 December 2021 and 31 December 2022.

QUESTION FOUR [27]

Tollify Limited manages and operates toll roads on major national routes throughout the country. The company purchased a licence to operate a toll road in the Kwadakuza area seventeen years ago for an amount of R10 000 000, this right being correctly recognised as an intangible asset on date of purchase. It was expected that the roll road would be in use for twenty years and that the economic benefits would flow to the entity evenly over this period. The estimated toll road usage is 1 000 000 cars per year. At the time, there were no plans to construct alternate roads in the area. There is no active market for toll road licences. During the current year, government announced plans to construct a bridge in an area that would cause a significant reduction in the usage of the toll road. Government began construction immediately. The directors estimate that the economic benefits flowing to the entity will decrease each year over the remaining three years of the licence, with an estimated toll road usage expected to drop to 800 000 cars, 600 000 cars and 400 000 cars respectively, over the remaining three years.

Required: Discuss the measurement of Tollify Limiteds Kwadakuza toll road licence.