Question: ABB Ltd leased a machine on 1 January 2017 for 5 years. The leased machinery has a fair value of $300,000. The implicit rate of

ABB Ltd leased a machine on 1 January 2017 for 5 years. The leased machinery has a fair value of $300,000. The implicit rate of interest in the lease is 10%. The annual lease payments are payable in advance at beginning of each accounting period. The first annual instalmentof$71,945 waspaidon1January 2017. ABB Ltd does not intend to buy the machine at the end of the lease term.

Required:

a) Is lease a finance lease or operating lease ? Why?

b) Prepare journal entries for ABB Ltd for 5 year lease.

c) Assume you are a manager of business. Which lease (finance lease or operating lease) do you prefer ?Explain your choose.

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a To determine whether the lease is a finance lease or operating lease we need to check whether it meets the criteria of a finance lease as per IFRS 1... View full answer

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