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Daphne Ltd enters into a non-cancellable four-year agreement with Bush Ltd on 1 July 2023. The lease is for an item of machinery. At the inception of the lease, the present value of the lease payments is $162 099. The implicit rate of interest is 12%. (Use these figures, there is no need to verify them).

The machinery is expected to have an economic life of five years, after which time it will have an expected salvage value of $30 000. There is a bargain purchase option that Daphne Ltd will be able to exercise at the end of the fourth year for $40 000. Daphne Ltd is reasonably certain to exercise that option.

There are to be four annual payments of $50 000, the first being made on 30 June 2024. Included within the $50 000 lease payments is an amount of $5 000 representing payment to the lessor for the insurance and maintenance of the machinery. The machinery is to be depreciated on a straight-line basis.

REQUIRED

Prepare the journal entries in the books of Bush Ltd for the year ending 30 June 2024.