FAC2601 Assignment 2 2026 | Due 10 April 2026 - Distinction Guaranteed

FAC2601 ASSIGNMENT 2 2026
DUE 10 APRIL 2026


QUESTION 1 (50 marks) (100 minutes)


The following balances were extracted from the accounting records of Purco
Trucks Ltd, a manufacturingcompany of various equipment, machinery and
trucks for the financial year ended 28 February 2025:




(Learning Unit 7 – IFRS 16 Leases, sections 7.3, 7.4.2, 7.4.3)

The contract with Texaco Ltd meets the definition of a lease under IFRS 16 because it
conveys the right to control the use of an identified asset (the fuel truck) for a period of
four years in exchange for consideration (LU7, par. 7.3). Purco Trucks Ltd is the lessee.

Initial recognition
At the commencement date (30 June 2024), Purco must recognise:
a right-of-use asset representing its right to use the truck, and
a lease liability representing its obligation to make lease payments (LU7, par.
7.4.2).

Initial measurement

Lease liability
The lease liability is measured at the present value of the lease payments not yet
paid at commencement date (LU7, par. 7.4.2). Lease payments include:

fixed annual instalments of R550 000 payable in arrears,
amounts expected to be payable under the residual value guarantee. Because
ownership transfers to Purco at the end of the lease at no additional cost, no
payment is expected under the R50 000 guarantee; it is therefore excluded (LU7,
par. 7.4.2).

, The discount rate is the interest rate implicit in the lease (14% per annum), which is
readily determinable (LU7, par. 7.4.3).
Thus, lease liability = PV of 4 annual payments of R550 000 at 14%.

Right-of-use asset
The right-of-use asset is initially measured at cost, comprising:

 the amount of the lease liability (as above),
 any lease payments made at or before commencement date – the non-refundable
deposit of R50 000 paid on 1 May 2024 (LU7, par. 7.4.2),
 any initial direct costs incurred by Purco (none mentioned),
 any estimate of dismantling/restoration costs (not applicable).

The deposit is not included in the lease liability because it was paid before
commencement; it is added directly to the cost of the right-of-use asset (LU7, par.
7.4.2).

Subsequent measurement (for context)

The right-of-use asset is depreciated over the shorter of its useful life (5 years) and the
lease term (4 years). Because ownership transfers, the useful life of 5 years is used
(LU7, par. 7.4.4).

The lease liability is measured using the effective interest method: interest expense (at
14%) is recognised in profit or loss, and the liability is reduced by the instalments paid
(LU7, par. 7.4.4).



Purco Trucks Ltd must recognise a right-of-use asset and a lease liability at the present
value of the four annual instalments of R550 000, plus the deposit of R50 000 as part of
the asset’s cost.



Reference: FAC2601 Learning Unit 7 (IFRS 16), sections 7.3, 7.4.2, 7.4.3, 7.4.4

, QUESTION 1 (b) – Statement of profit or loss and other comprehensive income

(Refer to Learning Unit 3 - IFRS 18 Presentation and Disclosure, especially sections
3.3, 3.4, 3.5)

PURCO TRUCKS LTD
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR
THE YEAR ENDED 28 FEBRUARY 2025

R

Revenue (W1) 12 000 000



Cost of sales (W2) (16 556 677)

Gross loss (4 556 677)

Other income (W3) 220 339

Distribution costs (W4) (794 500)

Administrative expenses (W5) (4 375 920)

Operating loss (9 506 758)

Finance costs –

Loss before tax (9 506 758)

Income tax expense (110 000)

LOSS FOR THE YEAR (9 616 758)

Other comprehensive income - none
Total comprehensive loss for the year - R9 616 758