Carbery plc who operate a copper mine in Munster leased drilling equipment during 2018. Carbery plc prepares its financial statements to 31 December each year. A review of the year-end books at 31 December 2018 revealed that the drilling equipment lease had not yet been recorded. The drilling equipment has a useful economic life of 5 years. The lease term is five years with an option for Carbery plc to continue leasing the drilling equipment after the five-year primary term at a rent below market rent. The lease agreement requires 5 annual payments of €100,000, and the first annual payment was made on 1 January 2018 with subsequent payments being due annually thereafter. The cash price (fair value) of the leased drilling equipment is €471,700 on 1 January 2018. Carbery depreciates the drilling equipment on a straight-line basis. The rate on interest implicit in the lease is 3%.

Required 

1. Prepare a schedule showing the computation of the interest expense for each year of the 5 year lease.

2. Give the journal entries for Carbery plc’s books for the first two years of the lease. 

3. Show the lease liability T account for the first two years of the lease.

4. Show how Carbery plc would account for the above lease in accordance with IFRS 16, Leases in the Statement of Profit or Loss and Other Comprehensive Income and the Statement of Financial Position for the years ending 31 December2018 and 2019.

Answer rating: 100% (QA)

Answer 4 Statement of Profit or Loss For year ended Dec 31 2019 Dec 31 2018 Le... View the full answer