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. ABBLtddoesnotintendtobuythemachineattheendoftheleaseterm.

Required: a)Isleaseafinanceleaseoroperatinglease?Why? (2marks)

b)PreparejournalentriesforABBLtdfor5yearlease.(10marks)

c)Assume you are a manager of business. Which lease (finance lease or operating lease) doyouprefer?Explainyourchoose.(13marks)

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