QUESTION 1

AF Ltd has requested your help in preparing their financial statements as they are unsure of the new requirements of NZ IFRS 16 Leases for lessors.

Question 1 answer format is attached below

You are provided with the following lease details:

AF Ltd is the:	Lessor
Commencement date	1 April 2019
Lease term	7 years
Lease classification	Operating Lease
Final payment payable at the end of the lease	$49 000
Fixed payments per annum received at year end	$70 000
FV of underlying asset (Machine) at commencement date	688 108
Economic life of the machine	7 years
The depreciation method used by the lessor for the leased machine	Straight line

Required:

(i) Prepare financial statements for AF Ltd to reflect the effects of the operating lease for the financial periods ending 31 March 2020, 2021, 2024, 2025 and 2026.

(ii) Prepare the additional journal entry required in relation to the PPE-Machine on 31 March 2026.

(iii) Drawing on the lease information provided and the guidance provided in NZ IFRS 16 on the classification of leases, briefly explain one reason why the lessor may justify the decision to classify this lease as a finance lease instead.

(ii) Prepare the additional journal entry required in relation to the PPE-Machine on 31 March 2026. (iii) Briefly explain one reason why the lessor may justify the decision to classify this lease as a (ii) Prepare the additional journal entry required in relation to the PPE-Machine on 31 March 2026. (iii) Briefly explain one reason why the lessor may justify the decision to classify this lease as a