Question Three

$(25$ marks$)$

Orange Unlimited entered into a contract with Fruits Ltd on $1$ January $2023,$ whereby Fruits Ltd will lease a machine for a period of four years. The cash selling price and fair value of the machine was P$400000$ on $1$ January $2023$ and the instalments amount to P$132000$ and are payable annually in arrears. The interest rate implicit in the lease is $12,1104\%$ per year.

Ownership of the machine will transfer to Fruits Ltd at the end of the lease term at no additional cost. The contract is classified as a lease in terms of IFRS $16,$ Leases.

The machine has a useful life of five $(5)$ years, and it is the company's policy to depreciate the machine over its useful life on the straight$-$line basis.

The company financial year$-$end is $31$ December.

REQUIRED

$($a$)$ Calculate the value of the right$-$of$-$use asset and the corresponding liability for Fruits Ltd at $1$ January $2023.$

$(4$ marks$)$

$($b$)$ Show the allocation of the finance charges over the lease term on an actuarial basis $($lease table$).$

marks$)$

$($c$)$ Show how the lease will be reported by the corporate in the financial statements of Fruits Limited for the year ended $31$ December $2023?$

$(11$ marks$)$

Your answers must comply with the International Financial Reporting Standards $($IFRS$).$

Round all amounts to the nearest Pula.