Requirement : a)Calculate the lease liability b)Prepare a lease schedule On 1 July 2023, Ringwood Ltd entered
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Requirement :
a)Calculate the lease liability
b)Prepare a lease schedule
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On 1 July 2023, Ringwood Ltd entered into a non-cancellable lease contract to lease office equipment from Blackburn Ltd for six years. The lease contract requires Ringwood Ltd to make half-yearly lease payments of $150,000 for 6 years, on 30 June and 31 December, each year, commencing on 31 December 2023. Included within the $150,000 half-yearly lease payments, is an amount of $20,000 representing payment to Blackburn Ltd for the insurance and maintenance of the equipment. Ringwood Ltd paid $15,000 for initial direct cost associated with the lease contract. The lease contract provides that Ringwood Ltd fully guarantees the residual value of the equipment, $220,000. The office equipment will be transferred to Ringwood Ltd when this payment is made. The interest rate implicit in the lease contract is 6% per annum. Blackburn Ltd manufactured the office equipment leased to Ringwood Ltd, at a cost of $1,000,000. The equipment is expected to have a useful life of 7 years, after which time it is expected to have a residual value of $80,000. The equipment will be depreciated on a straight-line basis. * Present value factors: PV of an ordinary annuity of $1 Interest rate Periods 12 6 6% 8.3838 4.9173 3% 9.9540 5.4172 Interest rate Periods 12 6 PV of $1 6% 0.4970 0.7050 3% 0.7014 0.8375 On 1 July 2023, Ringwood Ltd entered into a non-cancellable lease contract to lease office equipment from Blackburn Ltd for six years. The lease contract requires Ringwood Ltd to make half-yearly lease payments of $150,000 for 6 years, on 30 June and 31 December, each year, commencing on 31 December 2023. Included within the $150,000 half-yearly lease payments, is an amount of $20,000 representing payment to Blackburn Ltd for the insurance and maintenance of the equipment. Ringwood Ltd paid $15,000 for initial direct cost associated with the lease contract. The lease contract provides that Ringwood Ltd fully guarantees the residual value of the equipment, $220,000. The office equipment will be transferred to Ringwood Ltd when this payment is made. The interest rate implicit in the lease contract is 6% per annum. Blackburn Ltd manufactured the office equipment leased to Ringwood Ltd, at a cost of $1,000,000. The equipment is expected to have a useful life of 7 years, after which time it is expected to have a residual value of $80,000. The equipment will be depreciated on a straight-line basis. * Present value factors: PV of an ordinary annuity of $1 Interest rate Periods 12 6 6% 8.3838 4.9173 3% 9.9540 5.4172 Interest rate Periods 12 6 PV of $1 6% 0.4970 0.7050 3% 0.7014 0.8375
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Lease Liability The lease liability is the present value of the minimum lease payments over the leas... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
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