ABC is considering acquiring a machine from XYZ. It has two options; cash purchase at a cost of Rs. 14,274,890 or a lease. The terms of the lease are as follows: The lease period is for four years from 1 January 2019 with an annual rental of Rs. 5,000,000 payable on 31 December each year. The lessee is required to pay all repairs, maintenance and other incidental costs. Lease term is extendable for a further one more year and ABC is uncertain about exercising this option. The interest rate implicit in the lease is 15% p.a. ABC has an option to purchase the machine at the end of lease term. The estimated useful economic life span of the machine is five years. Required: 

a) Prepare Lease Liability Schedule for ABC. 

b) Pass Journal Entries for the year ended 2019 in Books of ABC & XYZ. 

c) Prepare an extract of the Financial Statements for ABC for the year ended 31 December 2019.

Answer rating: 100% (QA)

First classifying the leaseas per ASU 842 of the FASB for purposes of accounting We analyse the following criteria for ABC the lessee 1 Transfer of ow... View the full answer