On 1 January 2018 Ace Ltd entered into an arrangement to lease an item of equipment for
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On 1 January 2018 Ace Ltd entered into an arrangement to lease an item of equipment for four (4) years. The four (4) annual lease payments of $15,000 are due on 1 January of each year with the first lease payment required on 1 January 2019. Lease preparation and legal costs of $5,000 were paid on 1 January 2018. The arrangement also includes a residual amount of $10,000, due on 1 January 2022, that has been 100% guaranteed by Ace Ltd. The lease arrangement’s implicit rate of interest is 10%.
Ace Ltd has classified the arrangement as a lease under AASB 16: Leases and has adopted a 31 December year-end balance date.
What will be the lease entry that will be recognised in Ace Ltd’s financial statements for the year ended 31 December 2018:
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