At 1 January 2021, a contract between C Co. and a freight carrier (Supplier) provides Co....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
At 1 January 2021, a contract between C Co. and a freight carrier (Supplier) provides Co. with the use of 10 rail cars of a particular type for five years. The contract specifies the rail cars; the cars are owned by Supplier. C Co. determines when, where and which goods are to be transported using the cars. When the cars are not in use, they are kept at C Co.'s premises. However, the contract specifies that C Co. cannot transport particular types of cargo. If a particular car needs to be serviced or repaired, Supplier is required to substitute a car of the same type. Otherwise, and other than on default by C Co., Supplier cannot retrieve the cars during the five-year period. The fair value of ten cars on 1 January 2021 was $212,515. The Supplier and C Co. incurred $1,500 and $800 in costs to prepare and execute the lease document respectively. The terms of the lease agreement are as follows: Lease term commencing on 1 January 2021 Annual lease payment commencing on 1 January 2022 Estimated useful life of the cars (scrap value $2500) Estimated residual value of the cars at end of lease term Residual value guarantee by C Co. (expected to be payable) 5 years $57,500 Required: (1) What are the main principles in IFRS 16? (2) Is this contract a lease contract in accordance with IFRS 16? (3) What's the interest rate implicit in the lease? (4) Prepare the journal entry on 1 January 2021 for C Co. (5) Prepare the schedule to calculate the carrying value of lease liability. 8 years $37,000 $25,000 The annual lease payment includes an amount of $7,500 to cover annual maintenance and insurance costs. C Co. may cancel the lease but will incur a penalty equivalent to 2 years' payments if it does so. C Co. intends to lease a new machine at the end of the lease term. The end of the reporting period for both companies is 31 December. At 1 January 2021, a contract between C Co. and a freight carrier (Supplier) provides Co. with the use of 10 rail cars of a particular type for five years. The contract specifies the rail cars; the cars are owned by Supplier. C Co. determines when, where and which goods are to be transported using the cars. When the cars are not in use, they are kept at C Co.'s premises. However, the contract specifies that C Co. cannot transport particular types of cargo. If a particular car needs to be serviced or repaired, Supplier is required to substitute a car of the same type. Otherwise, and other than on default by C Co., Supplier cannot retrieve the cars during the five-year period. The fair value of ten cars on 1 January 2021 was $212,515. The Supplier and C Co. incurred $1,500 and $800 in costs to prepare and execute the lease document respectively. The terms of the lease agreement are as follows: Lease term commencing on 1 January 2021 Annual lease payment commencing on 1 January 2022 Estimated useful life of the cars (scrap value $2500) Estimated residual value of the cars at end of lease term Residual value guarantee by C Co. (expected to be payable) 5 years $57,500 Required: (1) What are the main principles in IFRS 16? (2) Is this contract a lease contract in accordance with IFRS 16? (3) What's the interest rate implicit in the lease? (4) Prepare the journal entry on 1 January 2021 for C Co. (5) Prepare the schedule to calculate the carrying value of lease liability. 8 years $37,000 $25,000 The annual lease payment includes an amount of $7,500 to cover annual maintenance and insurance costs. C Co. may cancel the lease but will incur a penalty equivalent to 2 years' payments if it does so. C Co. intends to lease a new machine at the end of the lease term. The end of the reporting period for both companies is 31 December.
Expert Answer:
Answer rating: 100% (QA)
1 Ans classmate what are the main principles in IFRS 16 IFRS stands for Inter... View the full answer
Related Book For
Financial Accounting and Reporting
ISBN: 978-1292162409
18th edition
Authors: Barry Elliott, Jamie Elliott
Posted Date:
Students also viewed these accounting questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Under a contract between a customer, Charlie (C) and a freight carrier Solutions Ltd (S), S provides C with 10 rail cars for five years. The cars, which are owned by S, are specified in the contract....
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
If the end of the cord is pulled downward with speed v C , determine the angular velocities of pulleys A and B and the speed of block D. Assume that the cord does not slip on the pulleys. Given: VC =...
-
Prepare a ratio analysis of FedEx's 2006 and 2007 year-end results?
-
1. Describe Leader Price according to the different types of retailers discussed in the chapter. 2. As a retail brand, assess the Leader Price strategy with respect to segmentation, targeting,...
-
Conventional management accounting systems provide the foundation for all other accounting systems.What are the main differences and links between conventional management accounting and environmental...
-
The trial balance of Robbie Gould Co. shown below does not balance.Each of the listed accounts has a normal balance per the general ledger. An examination of the ledger and journal reveals the...
-
A) Graph the function f(x) 522 == 2+21 B) Find the x- and y-intercepts C) Find all asymptotes and inflection points.
-
Use discriminant analysis to classify the new data in the Excel file Credit Approval Decisions Coded using only credit score and years of credit history as input variables.
-
Find an option quote on the appropriate Canadian exchange. Why did you choose this option? What is your reasoning behind this decision? How much would this decision cost an investor, ignoring...
-
The DDM, DCF and RIVM for valuation, the results of the three models varied considerably. Is this normal or how to check and modify them. Risk free rate Equity risk premium Beta Cost of equity...
-
What would the rate of return for a stock that increased in value from 560 per share to 563 per share and paid a 53.00 dividend?! 2-A speculator purchases a 37,000-pound contract for coffee for $1.08...
-
Assume semi-annual payments. A bond has a coupon rate of 4.0%when yields are 4.93%. If the bond has 4years to maturity,what is the price of the bond?
-
Show the tax benefit (per dollar investor) that exists on a municipal bond with a yield of 34 basis points (where one basis point is 0.01%, so that the yield would be 0.01%x34=0.34% f) for an...
-
a. Southwest is involved only in medical services and has not diversified its operations. \ b. Computer software cannot be modified by Southwest's employees. \ c. The office manager approves the...
-
The shortest interval in which a wave motion completely repeats itself (ie. makes one complete vibration or oscillation) is called the Question 1 options: a) period b) frequency c) amplitude d)...
-
In the current year, the City of Omaha donates land worth $500,000 to Ace Corporation to induce it to locate in Omaha and create an estimated 2,000 jobs for its citizens. a. How much income, if any,...
-
Arnold plc and Bunny plc agreed to establish a Joint Operation, Carlton, which started trading on 1 January 20X1. Carlton is an unincorporated business, which is financed and managed by Arnold and...
-
FRS 105 requires that a complete set of financial statements of a micro-entity should include the following: (a) A statement of financial position as at the reporting date with notes included at the...
-
The following are criticisms made of the IASB's 2015 exposure draft proposing updates to its Conceptual Framework. 1. The framework does not consider the meaning of the term 'true and fair view'...
-
Briefly describe six reasons why the auditor's approach to obtaining an understanding of internal control is different when a computer is used rather than manual processing.
-
In obtaining an understanding of the control environment that affects computer processing, the auditor will often consider several matters. Briefly describe these matters.
-
What is batch processing?
Study smarter with the SolutionInn App