QUESTION TWO

$[20]$

Shabaaz Limited is a distributor of Information Technology equipment and support. One of the company's competitors instituted legal action against Shabaaz Limited. Before year$-$end $(31$ August $2014),$ the company's legal representatives advised that, although losing the case was unlikely, legal fees and settlement costs could amount to R$450000$ in the event that the court case was lost.

On $4$ February $2015,$ the judge presiding over the case ruled that Shabaaz Limited should pay R$500000$ to the plaintiff as well as pay all of the plaintiff's legal fees, which amounted to R$90000.$ The financial statements had not yet been authorised for issue at the time of the court ruling.

REQUIRED:

Discuss how this information should be treated in the financial statements of Shabaaz

Limited for the year ended $31$ December $2014.$

Include all relevant definitions.

QUESTION THREE

$[20]$

$3\mathrm{.}1$ Describe five examples of situations where a lease would be classified as a finance lease.

$3\mathrm{.}2$ Hiphop Limited entered into a lease on $1$ January $2015$ for a period of $24$ months. Payments are structured as follows: The first $12$ instalments will be R$8000$ per month and the next $12$ instalments will be R$12000$ per month. The tax rate is $29\%.$

REQUIRED:

Determine and journalise, the amount of the operating lease expense and the tax implications to be presented in the Statement of Comprehensive Income, including the resulting accrual

or prepayment for the years ended $31$ December $2015$ and $2016.$