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ASSIGNMENT 02 (COMPULSORY)(FIRST SEMESTER) WRITTEN ASSIGNMENT Study: Learning units 1 to 7 of the study guide (GD 001); and Relevant chapters in...
ASSIGNMENT 02 (COMPULSORY)(FIRST SEMESTER) WRITTEN ASSIGNMENT
Study: Learning units 1 to 7 of the study guide (GD 001); and Relevant chapters in Descriptive Accounting.
QUESTION (30 marks)
Enzo Ltd is a company that manufactures and sells light fittings. Enzo Ltd has a 30 June yearend and is listed on the Johannesburg Stock Exchange. During March 2016, Enzo Ltd withdrew a machine from its manufacturing process. Enzo Ltd entered into a lease agreement on 1 April 2016 whereby Mixon Ltd will lease this machine from Enzo Ltd for four years. The lease agreement contains a lease as defined in IFRS 16, Leases. The following terms were specified in the lease agreement: Fair value of the machine on 1 April 2016 R1 120 000 Instalments payable bi-annually in arrears R173 200 Date of first instalment 30 September 2016 Residual value guarantee made by Mixon Ltd R50 000 Interest rate 11,42% per annum The ownership of the machine will transfer to Mixon Ltd at the end of the lease term upon payment of the residual value guarantee by Mixon Ltd. Enzo Ltd paid commission amounting to R9 727 to Realway Ltd for the conclusion of the lease agreement with Mixon Ltd.
Enzo Ltd originally acquired the machine on 1 February 2015 for R1 600 000 and depreciated the machine over its useful life of six years using the straight-line method. The residual value for purposes of depreciation was estimated at R200 000. On 1 July 2016, Enzo Ltd had 5 000 000 ordinary shares and 500 000 non-redeemable preference shares in issue. A preference dividend amounting to R65 000 was declared on 25 June 2017 and was paid on 30 July 2017. On 30 November 2016, Enzo Ltd issued 1 000 000 ordinary shares at market value of R15,20 per share. On 1 July 2015, Enzo Ltd issued 300 000 convertible debentures at par value of R2 each. The coupon rate of the debentures is 9% per annum and is paid annually on 30 June. The debentures are convertible into ordinary shares on 30 June 2020 in the ratio of one ordinary share for every two debentures held. Alternatively, the debentures can be redeemed at par value on 30 June 2020. The conversion is at the option of the debentures holders. The conversion to ordinary shares are the most dilutive option. The interest rate for similar debentures without a conversion option was 10,5% per annum on 1 July 2015. The present value of the debentures on 30 June 2016 amounted to R571 777. The profit after tax of Enzo Ltd for the financial year ended 30 June 2017 amounted to R6 242 250 after taking all the above transactions into account.
The SA normal income tax rate is 28% and the inclusion rate for capital gains tax is 80%. You may ignore value-added tax (VAT).
REQUIRED: Marks Disclose the above information in the notes to the annual financial statements of Enzo Ltd for the year ended 30 June 2017. The following notes are NOT required: - Accounting policies. - Income tax expense. - Deferred tax. - Property, plant and equipment. - Categories of financial assets in terms of IFRS 7, Financial Instruments: Disclosures. 30 marks
Please note: Your answers must comply with the requirements of International Financial Reporting Standards (IFRS). Comparative figures are NOT required. Round all amounts to the nearest rand except for interest rates should be rounded to two decimals.