Question: On 1 July 2023, Smart Ltd leased a processing plant to Gadget Ltd. The plant was purchased by Smart Ltd on 1 July 2023

On 1 July 2023, Smart Ltd leased a processing plant to Gadget Ltd. The plant was purchased by Smart Ltd on 1 July 2023 for its fair value of $340 000. The lease agreement contained the following provisions. Lease term Annual payment, payable in arrears on 30 June each year Estimated economic life of plant Estimated residual value of plant at end of lease term Residual value guaranteed by Gadget Ltd Interest rate implicit in the lease 3 years $120 000 5 years $49 000 $37 000 9% The lease is cancellable only with the permission of Smart Ltd. Gadget Ltd will return the processing plant to Smart Ltd at the end of the lease term. Smart Ltd is a financier lessor. The lease has been classified as a finance lease by Smart Ltd. Assume there are no executory costs and no initial direct costs incurred by Gadget Ltd. Required 1. Prepare: (a) the lease payments schedule for Gadget Ltd (b) the journal entries in the records of Gadget Ltd for the years ended 30 June 2024, 30 June 2025 and 30 June 2026. 2. Prepare: (a) the lease receipts schedule for Smart Ltd (b) the journal entries in the records of Smart Ltd for the years ended 30 June 2024, 30 June 2025 and 30 June 2026.

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