ACC222 Question 22

(10 marks) On 1 July 2019, Taylor Led entered into a lease agreement with Maxima Ltd, agreeing to lease a machine from Maxima Ltd for three years. The initial direct costs for Maxima Ltd amounts to $4,193. On 1 July 2019, the machine has a fair value of $168,000. The estimated useful life of the machine is four years, and it has an estimated residual value of $39,000 at the end of the lease term. The amount of residual value guaranteed by Taylor Ltd is $20,000. It is agreed that Taylor Ltd will make an annual payment of $63,000, including $8,000 which is the reimbursement of insurance and maintenance costs made to Maxima Ltd. The first lease payment is due on 30 June 2020. The interest rate implicit in the lease is 6%. The lease is cancellable by Taylor Ltd. However, any cancellation will incur a monetary penalty borne by Taylor Ltd, equivalent to 2 years' lease payments. Taylor Ltd intends to return the machine to Maxima Ltd at the end of the lease term. The machine is to be depreciated using straight-line method. Required: Answer this question in an excel/word file and upload the file when completed. Name your file in your last name and student ID. i. From the perspective of Maxima Ltd, discuss whether this is a finance lease or operating lease considering all the relevant information provided above. Justify your answer. (4 marks) ii. Prepare a schedule of lease payments for Taylor Ltd. (4 marks) iii. What is the amount of amortisation in relation to the leased machine to be recorded in Taylor Ltd's books for the year ended 30 June 2020? Explain your answer. (2 marks)