Case 1
Bait-This Ltd signed a 10-year lease agreement with a landlord for a building that they used for
their head office. The annual rentalwas R240 000.Circumstances changed for Bait-This Ltd, and they decided to move their head office into the same building as their marketing headquarters.
This occurred after they had been in the leased building for six years.
Bait-This Ltd were not able to cancel the lease agreement but were able to sublet the building to a tenant of their choosing. The financial director signed an agreement with a tenant for the remainder of the lease at a rental of R210 000 per annum.
Refer to Case 1
Q.2.1 In terms of IAS37 Provisions, contingent liabilities and contingent assets, the above (4) contract would meet the definition of what type of contract?
Describe the characteristics of this contract in terms of IAS37 Provisions, contingent
liabilities and contingent assets.
Q.2.2 Explain whether a provision should be raised for the lease, giving a reason for your answer. (3marks)
Provide an estimate of the value of the provision that would be recognised in the financial statements, if any. (3 marks)
Prepare the journal entry to recognise the provision, if any?
A journalnarration is required. (2marks)