a right of use asset and lease liability amount

b journal enteries

Question Three (15 marks) On 1 Jaly 2019, Dunbar Lid entered into a five-year lease agreemunt with Reltible finance Ltd for ar item of machinery. Dunbar Lid incurred initial direct costs of 51.350 to negotiate and arrange the lease. The lease agreement requires Dunbar Ltd to make flve anmunl lease payments of $25.000 per year paid at the beginning of each year (in advancer annuty due) on 1 July with the first payment on 1 Jaly 2019 At the end of the lease term, Dunbar Ud will return the item of machinery to Retiable flnance Ltd. The item of machinery will then be sold by Reliable Finance Ltd. The residual value of the item of machinery at the end of the lease term is estimated by Reliable Finance tud to be $15,000 of which $10,000 has been guaranteed by Dunbar Ltd. At the commencement of the lease, Dunbar Ltd estimates that, at the end of the lease term, the item of machinery will realise $12,000 when it is sold. The interest rate implicit in the lease is not determinable by Dunbar LId. Dunbar Lid's incremental borrowing rate is 5% per annum which reflects the fixed rate at which Dunbar Ltd could borrow an amount similar to the value of the right-of-use asset, in the same currency, for a five-year term, and with similar collateral