Question
ABC Ltd enters into a five-year lease agreement with Legal Ltd on 1 July 2023 for an item of machinery. There is a bargain
ABC Ltd enters into a five-year lease agreement with Legal Ltd on 1 July 2023 for an item of machinery. There is a bargain purchase option that ABC Ltd will be willing to exercise at the end of the fifth year for $90 000. The machinery is expected to have a useful life of five years There are to be five annual payments of $140 000, the first being made on 30 June 2024. Included within these payments is $20 000 representing payment to the lessor for insurance and maintenance of the equipment. Additional information Implicit interest rate: 8 per cent Present value of an annuity in arrears of $1 for five years at 8 per cent = 3.9927 Present value of $1 in five years at 8 per cent = 0.6806 Required: 1. Determine the initial measurement of the lease liability 2. Determine the initial measurement of right-of-use asset cost 3. Provide the accounting journal entries for the year ended 30 June 2024
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started