Question
Accounting for leases Robin Ltd operates in a very competitive printing field. To maintain its market position and provide high quality printing services it used
Accounting for leases Robin Ltd operates in a very competitive printing field. To maintain its market position and provide high quality printing services it used to purchase new printing machines, and maintained them at a high cost. Due to Covid19 the company has been experiencing significant cash flow problems. One of the board of directors suggested at the board meeting to lease machines required by the company rather than purchasing for cash, and the chairman of the board wants to accept this proposal as a company policy. Oceans Ltd manufactures specialised printing machines for both sale and lease. It agrees to lease a brand new printing machine to Robin ltd. The lease agreement contained the following provisions. Length of lease 5 years Commencement date 1 July 2020 Annual lease payment, payable 1 July each year commencing 1 July 2020 $200 000 Estimated economic life of the machine 5 years Annual Interest rate implicit in the lease 5% Chairman of the board directed company accountant to submit a detailed report on the above project.
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