q1. explain why sam ltd is required to recognise the lease on its balance sheet, rather than just expensing lease payments when they are paid.

q2. prepare journal entries relating to the lease in the accounts of sam ltd for the year ended 30 june 2020:

journal to recognise the lease on 1 july 2019

journal to recognise any interset expense at 30 june 2020

journal to recognise depreciation at 30 june 2020

journal to recogise executory expense at 30 june 2020.

Question 2 (20 marks) Sam Lad entered into a contract to lease a machine from Alex Ltd on 1 July 2019. The lease agreement is for four years, with four annual payments of $33,000 in arrears. This includes executory costs of $3,000 per annum to cover insurance and maintenance on the machine. The machine will be returned to Alex Ltd at the end of the lease term with a residual guarantee of $5,000 payable with the last payment. The interest rate applicable to the lease is 10%, and at July 2019 the machine has an expected economic life of 6 years. The following lease payments schedule has been prepared for Sam Ltd. Date Lease payment Interest Reduction in Balance of liability liability 1 July 2019 $98.512 1 July 2020 30.000 9.851 20.149 78.363 1 July 2021 30.000 7.836 22.164 56.199 1 July 2022 30.000 5.620 24380 31.819 1 July 2023 35.000 3.181 31.819 0