On 1 July 2009, Moose Jaw Ltd leased a plastic moulding machine from Winnipeg Ltd. The machine cost Winnipeg Ltd EUR 260,000 to manufacture and had a fair value of EUR 308,218 on 1 July 2009. The lease agreement contained the following clauses: 

The expected useful life of the machine is six years. Moose Jaw Ltd intends to return the machine to the lessor at the end of the lease term. Included in the annual rental payment is an amount of EUR 3,000 to cover the costs of maintenance and insurance paid for by the lessor. 

(a) Classify the lease for both lessee and lessor based on the guidance provided in JAS 17 (refer to Figure 8.1). 

(b) Prepare: 

(i) the lease schedules for the lessee (show all workings); 

(ii) the journal entries in the books of the lessee for the year ended 30 June 2010.

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Lease term Annual rental payment, in advance on 1 July each year Residual value at end of the lease term Residual guaranteed by lessee Interest rate, implicit in lease The lease is cancellable only with the agreement of the lessor 4 years 83,000 30,000 Nil 8%