On 1 July 2009, Haines Ltd leased a processing plant to Kitmat Ltd. The plant was purchased by Haines Ltd on 1 July 2009 at fair value of EUR 934,224. The lease agreement contained the clauses shown below:

Kitmat Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor. 

Prepare: 

(a) the lease payment schedule for the lessee (show all workings); 

(b) the journal entries in the books of the lessee for the year ending 30 June 2011;

(c) the lease receipt schedule for the lessor (show all workings); 

(d) the journal entries in the books of the lessor for the year ending 30 June 2011.

Transcribed Image Text:

Lease term Economic life of plant Annual rental payment, in arrears (commencing 30/06/2010) Residual value at end of the lease term Residual guaranteed by lessee Interest rate implicit in lease The lease is cancellable only with the agreement of the lessor 3 years 5 years 300,000 180,000 120,000 7%