SOLUTIONS
TUTORING FOR FAC,MAC,ECS,STA,DSC,TAX, FIN ,INV,QMI, BNU,MNG,MNB,BSM,
CLA
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EMAIL:
, PURCO TRUCKS LTD
FAC2601 – ASSIGNMENT 02 | SEMESTER 1 | 2026
Financial Year Ended 28 February 2025
QUESTION 1(a) – DISCUSSION: INITIAL RECOGNITION AND INITIAL MEASUREMENT OF LEASE
(ADDITIONAL INFORMATION 5)
Applicable standard: IFRS 16 – Leases
1. IDENTIFICATION OF A LEASE
In terms of IFRS 16.9, at the inception of a contract an entity must assess whether the contract is, or contains, a
lease. A lease exists if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.
Purco Trucks Ltd entered into a contract with Texaco Ltd on 30 June 2024 to lease a specialised fuel truck for four
years. The truck is an identified asset (specific asset identified in the contract). Purco Trucks Ltd has the right to
obtain substantially all of the economic benefits from use of the truck and has the right to direct how and for what
purpose the truck is used throughout the four-year period. Accordingly, the contract constitutes a lease in terms of
IFRS 16.
2. INITIAL RECOGNITION (Commencement Date: 30 June 2024)
In terms of IFRS 16.22, at the commencement date, the lessee shall recognise:
• (a) a right-of-use (ROU) asset; and
• (b) a lease liability.
3. INITIAL MEASUREMENT OF THE LEASE LIABILITY
In terms of IFRS 16.26, at the commencement date the lease liability shall be measured at the present value of
the lease payments not yet made, discounted using the interest rate implicit in the lease (14% per annum, since it
can be determined).
The lease payments to be included in the measurement of the lease liability (per IFRS 16.26) comprise:
• (i) Fixed annual lease instalments of R550 000, payable annually in arrears over the four-year lease term.
• (ii) The guaranteed residual value of R50 000 payable at the end of the lease term (IFRS 16.26(d)).
The non-refundable deposit of R50 000 paid on 1 May 2024 (prior to the commencement date) represents a lease
prepayment and is NOT included in the lease liability – it is instead included in the cost of the right-of-use asset.
Note: The initial direct costs of R5 500 were incurred by Texaco Ltd (the lessor) and are therefore not relevant to
Purco Trucks Ltd's (lessee's) measurement of the lease liability.
4. INITIAL MEASUREMENT OF THE RIGHT-OF-USE ASSET
In terms of IFRS 16.24, the right-of-use asset is initially measured at cost, which comprises:
• (i) The amount of the initial measurement of the lease liability (present value calculated above);
• (ii) Any lease payments made at or before the commencement date, less any lease incentives received –
being the non-refundable deposit of R50 000 paid on 1 May 2024 (IFRS 16.24(b));
• (iii) Any initial direct costs incurred by the lessee – none applicable for Purco Trucks Ltd (IFRS 16.24(c));
and
• (iv) An estimate of costs to dismantle/restore – none indicated (IFRS 16.24(d)).
5. DEPRECIATION OF THE RIGHT-OF-USE ASSET
In terms of IFRS 16.31(a), since ownership of the fuel truck transfers to Purco Trucks Ltd at the end of the lease
term at no additional cost, the right-of-use asset is depreciated over the useful life of the underlying asset (5
years), not merely the lease term (4 years). This is consistent with the depreciation policy for owned assets.
6. COMMUNICATION MARK
The discussion above is structured logically: identification of lease → lessee recognition → measurement of
liability → measurement of ROU asset → depreciation period. Relevant IFRS 16 paragraph references are cited
throughout.
QUESTION 1(b) – STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 28 February 2025 (in accordance with IFRS 18)
TUTORING FOR FAC,MAC,ECS,STA,DSC,TAX, FIN ,INV,QMI, BNU,MNG,MNB,BSM,
CLA
whatsapp me on+27737560989
EMAIL:
, PURCO TRUCKS LTD
FAC2601 – ASSIGNMENT 02 | SEMESTER 1 | 2026
Financial Year Ended 28 February 2025
QUESTION 1(a) – DISCUSSION: INITIAL RECOGNITION AND INITIAL MEASUREMENT OF LEASE
(ADDITIONAL INFORMATION 5)
Applicable standard: IFRS 16 – Leases
1. IDENTIFICATION OF A LEASE
In terms of IFRS 16.9, at the inception of a contract an entity must assess whether the contract is, or contains, a
lease. A lease exists if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.
Purco Trucks Ltd entered into a contract with Texaco Ltd on 30 June 2024 to lease a specialised fuel truck for four
years. The truck is an identified asset (specific asset identified in the contract). Purco Trucks Ltd has the right to
obtain substantially all of the economic benefits from use of the truck and has the right to direct how and for what
purpose the truck is used throughout the four-year period. Accordingly, the contract constitutes a lease in terms of
IFRS 16.
2. INITIAL RECOGNITION (Commencement Date: 30 June 2024)
In terms of IFRS 16.22, at the commencement date, the lessee shall recognise:
• (a) a right-of-use (ROU) asset; and
• (b) a lease liability.
3. INITIAL MEASUREMENT OF THE LEASE LIABILITY
In terms of IFRS 16.26, at the commencement date the lease liability shall be measured at the present value of
the lease payments not yet made, discounted using the interest rate implicit in the lease (14% per annum, since it
can be determined).
The lease payments to be included in the measurement of the lease liability (per IFRS 16.26) comprise:
• (i) Fixed annual lease instalments of R550 000, payable annually in arrears over the four-year lease term.
• (ii) The guaranteed residual value of R50 000 payable at the end of the lease term (IFRS 16.26(d)).
The non-refundable deposit of R50 000 paid on 1 May 2024 (prior to the commencement date) represents a lease
prepayment and is NOT included in the lease liability – it is instead included in the cost of the right-of-use asset.
Note: The initial direct costs of R5 500 were incurred by Texaco Ltd (the lessor) and are therefore not relevant to
Purco Trucks Ltd's (lessee's) measurement of the lease liability.
4. INITIAL MEASUREMENT OF THE RIGHT-OF-USE ASSET
In terms of IFRS 16.24, the right-of-use asset is initially measured at cost, which comprises:
• (i) The amount of the initial measurement of the lease liability (present value calculated above);
• (ii) Any lease payments made at or before the commencement date, less any lease incentives received –
being the non-refundable deposit of R50 000 paid on 1 May 2024 (IFRS 16.24(b));
• (iii) Any initial direct costs incurred by the lessee – none applicable for Purco Trucks Ltd (IFRS 16.24(c));
and
• (iv) An estimate of costs to dismantle/restore – none indicated (IFRS 16.24(d)).
5. DEPRECIATION OF THE RIGHT-OF-USE ASSET
In terms of IFRS 16.31(a), since ownership of the fuel truck transfers to Purco Trucks Ltd at the end of the lease
term at no additional cost, the right-of-use asset is depreciated over the useful life of the underlying asset (5
years), not merely the lease term (4 years). This is consistent with the depreciation policy for owned assets.
6. COMMUNICATION MARK
The discussion above is structured logically: identification of lease → lessee recognition → measurement of
liability → measurement of ROU asset → depreciation period. Relevant IFRS 16 paragraph references are cited
throughout.
QUESTION 1(b) – STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For the year ended 28 February 2025 (in accordance with IFRS 18)
