Exam (elaborations)
FAC3703 Assignment 1 Semester 1 2023
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FAC3703 ASSIGNMENT 1 SEMESTER 1 2023
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2023H20 LTD COMPANY
SEMESTER 1
ANSWERS/EXPLANATION
FAC3703
ASSIGNMENT 1
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H20 Ltd H20 Ltd is a company that produces and bottles natural
spring water and sparkling water. What influences the taste of the
water? Both the source of the spring as well as the delicate
balance of pH and mineral content, contribute to the taste of water.
H20 Ltd products have been on a high demand recently and to
keep with the demand they have decided to the expand operations.
H20 Ltd will be leasing a new machine to help with the production
of the new alkaline range and issuing convertible debentures to
assist with the increased demand. H20 Ltd has a 31 July year end.
1. Lease of machine On 1 August 2022, H20 Ltd entered into a
contract with AlkalineNow Ltd to lease a machine from AlkalineNow
Ltd. The contract between the two companies contains a lease in
terms of IFRS 16, Leases. The lease agreement for the machine is
as follows:
Fair value of machine on 1 August 2022 R 2 301 000 Lease
commencement date 1 August 2022 Bi-annual instalments payable
in arrears (starting on 31 January 2023) R485 010 Guaranteed
residual value at the end of the lease R50 000
FAC3703/101/3/2023 17 Unguaranteed residual value at the end of
the lease R10 000 Lease term 3 years H20 Ltd will take ownership
of the machine at the end of the lease term after payment of the
guaranteed residual value.
H20 Ltd paid R14 000 legal fees and AlkalineNow Ltd R8 000
commission to Water Brokers for drawing up the lease agreement.
It is the policy of H20 Ltd to depreciate property, plant and
equipment over their estimated useful lives, which is in agreement
with the allowances granted by the South African Revenue Service.
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