Question: Baltimore Ltd is a company that recently started operations. It decided to rent offices in a building in Rosebank from Today Property Ltd. The minimum

Baltimore Ltd is a company that recently started operations. It decided to rent offices in a building in Rosebank from Today Property Ltd. The minimum lease period according to the contract is four years. If Baltimore Ltd cancel the contract any earlier, there will be penalties payable. The lease agreement contains the following payment terms:

Lease payment per month: R

Baltimore Ltd is a company that recently started operations. It decided to rent offices in a building in Rosebank from Today Property Ltd.

Year 1 Year 2 Year 3 Year 4

3 200 4 700 5 300 6 900

The minimum lease period according to the contract is four years. If Baltimore Ltd cancel the contract any earlier, there will be penalties payable. The lease agreement contains the following payment terms: Lease payment per month: R Year 1 Year 2 Year 3 Year 4 3 200 4

The payments are initially low because Baltimore Ltd currently does not have sufficient cash flow. Today Property Ltd incurred legal fees of R1 500 regarding the lease. The contract was signed and the lease term commenced on 1 April 2019.

Required:

700 5 300 6 900 The payments are initially low because Baltimore

Q.1.1.1

Show the calculation of the equalisation of the lease payments for (6) the operating lease in the books of the lessor.

Q.1.1.2

Provide the journal entry in the books of the lessor for the year ending 31 March 2020 to account for the rental paid to Today Property Ltd.

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