On 1 July 2018, Milano Motors Ltd acquired equipment under a four-year finance lease agreement from Kennards
Question:
On 1 July 2018, Milano Motors Ltd acquired equipment under a four-year finance lease agreement from Kennards Ltd. The present value of the lease payments is $431,213. It has an estimated useful life of five years and an estimated residual value of $31,213. The implicit rate of interest on the lease was 8% per annum. The lease involved five payments, an initial payment of $100,000 and four annual payments on 30 June each year of $100,000.
Milano Motors Ltd will retain the equipment at the end of the lease.
Required:
(a) Briefly explain, according to the Conceptual Framework, with particular reference to the qualitative characteristic of relevance, what information value is provided by the use of present value to measure the lease for Kennards Ltd and Milano Motors Ltd.
(b) Complete a lease schedule for the four years up to and including 30 June 2022.
(c) Prepare the Income Statement for the year ended 30 June 2020.
(d) Prepare the Balance Sheet extract as at 30 June 2020.
Expert Answer:
a As per the conceptual framework any financial information is useful if it has characteristics of ... View the full answer
