Thomas Ltd entered into a five-year lease agreement with Hardy Ltd on 1 July 2020 for an
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Question:
- Thomas Ltd entered into a five-year lease agreement with Hardy Ltd on 1 July 2020 for an item of machinery. Thomas Ltd paid $4,000 on 1 July 2020 to enter the lease contract (direct costs). Prior to entering the lease, Hardy Ltd incurred $6,000 in arranging the lease. There is a payment of $80,000 to be made in arrears each year, the first of which falls due on 30 June 2021. Included in these payments is $5,000 representing payment to the lessor for insurance and maintenance of the machinery. There is a purchase option that Thomas Ltd is willing to exercise at the end of the fifth year for $60,000. The machinery is expected to have a useful life of eight years and a residual value of $20,000 at the end of its useful life.
- The interest rate implicit in the lease is 8%.
- Answer ALL Questions.
Question (i) Determine the initial measurement of the lease liability. - Question (ii) Determine the initial measurement of the right-of-use asset. 2 Marks
- Question (iii) Calculate the stream of interest expenses across the lease term. 4 Marks
- Question (iv) Calculate the annual amortisation on the right-of-use asset. 2 Marks
- Question (v) Provide the accounting journal entries for Oliver Ltd for the year ended 30 June 2021. 8 Marks
- You must show all your workings for this Question.
- Enter your answers into the Journal below. Show your workings at the bottom of the Journal where provided:
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Related Book For
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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