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PARTB Cardiff Limited, a manufacturer of automotive components for both local and foreign car manufacturers, is listed on the Johannesburg Stock Exchange On 1 January 20.4, Cardiff Limited entered into a lease agreement with Jones Limited the lessor, for the use of a large storage facility at Millennium Industrial Park outside Johannesburg. The lease was for a period of six years with an option to extend the lease for a further four years. At the commencement of the lease, Cardiff Limited was not reasonably certain that it would exercise the renewal option to extend the lease beyond the initial sixyear term of the lease. On 1 January 20.4, Cardiff Limited paid initial direct costs of R25 000 relating to the lease and a further amount of R60 000 for leasehold improvements to the storage facility. In terms of the lease agreement, the annual lease payments were as follows: - R320 000 at the commencement of the lease on 1 January 20.4; - R150 000 payable annually thereafter during the next five years of the initial six-year term of the lease; and - R 180000 payable annually thereafter in advance during the renewal period commencing on 1 January 20.10 . The interest rate implicit in the lease was not determinable. Cardiff Limited's incremental borrowing rate at the commencement of the lease was 11% per annum, which reflected the equivalent risk on future borrowings by Cardiff Limited. Towards the end of the 20.7 financial year, Cardiff Limited's rapidly expanding business prompted the company to reconsider its storage capacity in the area. To this end, the directors of Cardiff Limited made a formal decision on 1 January 20.8 to exercise the option to extend the original lease for the renewal period of four years to a total lease term of 10 years. On 1 January 20.8 , Cardiff Limited's incremental borrowing rate was 10% per annum. \begin{tabular}{|c|l|c|} \hline 2. & PreparejournalentriestoreflectallmattersrelatingtotheleaseintheaccountingrecordsofCardiffLimitedfortheyearended31December20.8.EntriesrelatingtodepreciationandtaxationareNOTrequired. & 9 \\ \hline \end{tabular} PARTB Cardiff Limited, a manufacturer of automotive components for both local and foreign car manufacturers, is listed on the Johannesburg Stock Exchange On 1 January 20.4, Cardiff Limited entered into a lease agreement with Jones Limited the lessor, for the use of a large storage facility at Millennium Industrial Park outside Johannesburg. The lease was for a period of six years with an option to extend the lease for a further four years. At the commencement of the lease, Cardiff Limited was not reasonably certain that it would exercise the renewal option to extend the lease beyond the initial sixyear term of the lease. On 1 January 20.4, Cardiff Limited paid initial direct costs of R25 000 relating to the lease and a further amount of R60 000 for leasehold improvements to the storage facility. In terms of the lease agreement, the annual lease payments were as follows: - R320 000 at the commencement of the lease on 1 January 20.4; - R150 000 payable annually thereafter during the next five years of the initial six-year term of the lease; and - R 180000 payable annually thereafter in advance during the renewal period commencing on 1 January 20.10 . The interest rate implicit in the lease was not determinable. Cardiff Limited's incremental borrowing rate at the commencement of the lease was 11% per annum, which reflected the equivalent risk on future borrowings by Cardiff Limited. Towards the end of the 20.7 financial year, Cardiff Limited's rapidly expanding business prompted the company to reconsider its storage capacity in the area. To this end, the directors of Cardiff Limited made a formal decision on 1 January 20.8 to exercise the option to extend the original lease for the renewal period of four years to a total lease term of 10 years. On 1 January 20.8 , Cardiff Limited's incremental borrowing rate was 10% per annum. \begin{tabular}{|c|l|c|} \hline 2. & PreparejournalentriestoreflectallmattersrelatingtotheleaseintheaccountingrecordsofCardiffLimitedfortheyearended31December20.8.EntriesrelatingtodepreciationandtaxationareNOTrequired. & 9 \\ \hline \end{tabular}

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