QUESTION 4
(15 Marks)
Part A
Food for All Limited operates a chain of supermarkets around the country. It enters
into a contract with Prop Limited for the lease of a warehouse in a location chosen by
Food for All Limited for its proximity to some of its retail outlets and access to the road
transport network. It cannot be substituted by Prop Limited.
The initial lease term is for three years, at a rental of N$ 50 000 per month which is in
accordance with current market rates. It is non-cancellable. Food for all Limited has
the option to extend the lease for a further three-year non- cancellable term at the
same rental.
Market rentals for similar warehouses in the same area are expected to increase by
10% over six years, Over the next ten years, Food for All Limited intends to expand its
retail outlets in the surrounding areas and the government has announced plans to
further improve the road network
Required
Discuss, in terms of IFRS 16 Leases, the length of the lease term that Food for all
should use in accounting for this contract (10 marks)
Part B
Food for All Limited operates a chain of supermarkets around the country. It enters
into a contract with Prop Limited for the lease of a warehouse in a location chosen by
Food for All Limited for its proximity to some of its retail outlets and access to the road
transport network. It cannot be substituted by Prop Limited.
The initial lease term is for three years, at a rental of N$ 50 000 per month which is in
accordance with current market rates. It is non-cancellable. Food for all Limited has
the option to extend the lease for a further three-year non- cancellable term at a rental
of N$ 55 000 per month.
Food for All Limited is considering the future of its retail outlets in the surrounding
areas as some of these stores are not performing well.
Required
Discuss in terms of IFRS 16 Leases, the length of the lease term that Food for all
should use in accounting for this contract (5 marks)
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