UNIT 4 ASSIGNMENT 3 3. S. 3 **3 ASSIGNMENT The purpose of this assignment is to assist you to integrate the concepts you have learnt in Unit 4. Instructions Step 1: Read through the question and prepare your solution. This can be either be a handwritten solution or electronically (Word or Excel). Step 2: Submit your solution onto blackboard. This can be either a handwritten solution that you can scanned or an electronic copy (Word or Excel). ASSIGNMENT 2 You have been recently appointed as the junior accountant of ABZ Ltd, a water bottle manufacturer based on the West Rand. The managing director of the firm has entered into the following agreement to acquire new water bottle manufacturing equipment. The following extract is obtained from the agreement: How Aquipment ud Aquipment Rental Agreement Lessor: HBW Equipment Ltd 26 Bomvu Street Secunda Mpumalanga Tel: 017-888-8000 Premises where the equipment will be kept and used: ABZ Ltd 49 White Street Witpoortjie Gauteng Tel: 011-222-2000 Specifications of rented equipment: ITEM Model SM-16/15 H20 water bottle manufacturer SERIAL NUMBER #25467895 DESCRIPTION Auto/Semi Semi-automatic Machine Weight 550kg Machine dimensions 1.4m x 0.65m x 1.6m Container height 31 Omm Mould thickness 110 - 210mm Container diameter 100mm Output/hour 800 - 1000 bottles Heater power 3.6kw Rental terms and conditions: 1. The lessee shall keep and maintain the equipment at the lessee's premises during the term of rental at the lessee's own cost and expense. 2. The equipment requires servicing every 100 000 bottles or at the very least, once a year. 3. During the period of service, the Lessor will provide the lessee with replacement equipment which will be returned to the Lessor once the service of the equipment has been completed. The renter will determine how and when and for what purpose the equipment will be used. 4. Balance In addition, you are provided with the following lease payment schedule. Effective interest (12%) Instalment R R 01-Feb-18 31-Mar-18 90 840 (210 000 31-Mar-19 76 541 (210 000) 31-Mar-20 60 526 (210 000) ) 31-Mar-21 42 590 (210 000) 31-Mar-22 22 500 (210 000) R 757 003 637 843 504 384 354 910 187 500 5. In accordance with environmental protection legislation and regulations, the lessee may not use the equipment to produce bottles that will be used to contain liquids of a flammable nature. 6. The lessor may retrieve the equipment in the event of default. 7. ABZ Limited will not obtain ownership at the end of the lease term. . 8. As at 1 February 2018, the equipment has a useful life of 10 years. REQUIRED a) Discuss whether the above agreement should be classified as a lease in terms of IFRS 16 Leases? (20) b) Journalise the above contract in the general journal of ABZ Ltd for the reporting period ended 31 March 2018
