On 1 July 2021,abc Ltd leases a classroom from Capital Ltd for 9 years(i.e., until 30 June 2030). The lease agreement can be cancelled, but a significant penalty will be incurred by abcLtd. The lease payments required include a payment up-front of $50,000 on 1 July 2021, followed by another 9 equal payments of $50,000 on 30 June each year up to 30 June 2030. The interest rate implicit in the lease is 10%. The total residual value is $10,000 at the end of the lease period but the guaranteed residual value is zero. The present value of an annuity of $1 at 10% for 8 years is 5.3349. The present value of $1 at 10% at Year 9 is 0.4241.

Required:

a.Show the lease payment schedule for the first three years, i.e. from 1 July 2021 until 30 June 2024. (5 marks)

b.Prepare the journal entries for abc Ltd (lessee) to record the initial recognition of lease related assets and liabilities with the up-front payment, and interest expense and depreciation under AASB 16/IFRS 16 for financial year ending 30 June 2022. (9 marks)

c.Prepare the journal entries for Capital Ltd (lessor) to record the initial recognition of lease related assets and liabilities with the up-front receipt and interest revenue under AASB 16/IFRS 16 for financial year ending 30 June 2022. Assume Capital Ltd is a financier lessor. (6 marks)

Answer rating: 100% (QA)

a YEAR 1 1 JULY 2021 30 JUNE 2022 Upfront payment 50000 Lease payments 50000 Total 1000... View the full answer