Bus Body Limited is a dealer in buses used for inner - city transport. Bus Body Limited
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Question:
Bus Body Limited is a dealer in buses used for innercity transport. Bus Body Limited entered into a contract for the lease of a bus to City Buses Limited and purchased the bus for R on January X The bus has a cash sale price of R The bus was delivered to City Buses Limited on the same day, the start of the lease term. It has an estimated useful life of five years and an estimated residual value of R guaranteed by City Buses Limited. Lease instalments of R are received annually in arrears on December for the five years of the lease term.
The interest rate implicit in the agreement is The following present value table is
provided:
PV factor
Annuity in arrears of R for four years, discounted at
Present value of R in years, discounted at
Required:
a Prove that the implicit interest rate is
b Calculate the gross investment in the lease, the net investment in the lease and the amount of the finance income.
c Prepare the journal entries in the accounting records of Bus Body Limited for the year ended December X using the gross method.
d Provide an extract from the statement of financial position of Bus Body Limited at December X showing the finance lease receivable.
e Provide the disclosure relating to the lease in the notes to the financial statements of Bus Body Limited.
Ignore tax.
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