Unifood Pty. Limited entered a lease agreement with Charlatan Pty. Limited for the lease of a building
Question:
Unifood Pty. Limited entered a lease agreement with Charlatan Pty. Limited for the lease of a building on the 1st of July 2018. The lease was for five years and the terms required payments of $40,000 per year. The estimated economic life of the building is 40 years. The market value of the building is $20 million. Lease payments are made at the end of each financial year.
Required:
(1) Under the new accounting standards AASB 16, discuss whether the lease agreement will be considered an operating lease or a finance lease to the lessee. Explain your answers.
(2) Prepare journal entries for the lessor – Charlatan Pty. Limited at the end of each financial year.
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield