Question
BIRD Limited has a factory situated away from established commuter routes and provides bus transport for its employees from the city centre to the factory.
BIRD Limited has a factory situated away from established commuter routes and provides bus transport for its employees from the city centre to the factory.
BIRD Limited entered into a contract with BigFin Limited for the lease of a bus. The model and size of the bus is stated in the contract and BigFin Limited does not have substitution rights.
The commencement date of the lease is 1 April 20X5 The lease agreement is for a period of four years and requires four lease payments in advance of C110 000. The first payment is due on 1 April 20x5 and the remaining three payments on 1 April 20X6, 1 April 20X7 and 1 April 20X8.
The contract stipulates a residual value guarantee of C80 000. At the inception of the lease, BIRD Limited expects that the fair value of the bus at the end of the lease term will be C42 500. The estimated useful life of the bus is six years. BIRD Limited's incremental borrowing rate is 7%. The following present value table is
PV factor Present value of annuity in advance of C1 for four years, discounted at 7% 3,62431
Present value of C1 in four years, discount at 7% 0,76289
The financial year end of Eagle Limited is 31 March.
Prepare the lease note to support the disclosure of the lease in the financial statements of BIRD Limited for the year ended 31 March 20X6, in accordance with International Financial Reporting Standards.
gnore tax and deferred tax
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