On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has...

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On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has a useful life of six years. The annual lease payments are $5,000 per annum, with the first payment made on 1 January 2015. To obtain the lease Plum incurs initial direct costs of $1,000 in relation to the arrangement of the lease but the lessor agrees to reimburse Pear $500 towards the costs of the lease. The rate implicit in the lease is 5%. The present value of the minimum lease payments is $22,730. Require Demonstrate how the lease will be accounted in the financial statements over the five year period. On 1 January 2015, Plum entered into a five year lease of machinery. The machinery has a useful life of six years. The annual lease payments are $5,000 per annum, with the first payment made on 1 January 2015. To obtain the lease Plum incurs initial direct costs of $1,000 in relation to the arrangement of the lease but the lessor agrees to reimburse Pear $500 towards the costs of the lease. The rate implicit in the lease is 5%. The present value of the minimum lease payments is $22,730. Require Demonstrate how the lease will be accounted in the financial statements over the five year period.

Answer rating: 100% (QA)

To demonstrate how the lease will be accounted for in the financial statements over the fiveyear period we need to consider the various elements involved the annual lease payments initial direct costs ... View the full answer