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Buffalo Corp., which uses IFRS, signs a 4-year, non-cancellable lease agreement to lease equipment from Labelle Ltd. The following information concerns the lease agreement. 1.
Buffalo Corp., which uses IFRS, signs a 4-year, non-cancellable lease agreement to lease equipment from Labelle Ltd. The following information concerns the lease agreement.
1. | The equipments fair value on July 1, 2020 is $292,000. | |
2. | The agreement requires equal rental payments of $59,600 beginning on July 1, 2020. | |
3. | The equipment has an estimated economic life of 5 years, with an unguaranteed residual value of $80,100. Buffalo Corp. depreciates similar equipment using the straight-line method, with no residual value. | |
4. | The lease is non-renewable. At the termination of the lease, the equipment reverts to Labelle. | |
5. | Buffalos incremental borrowing rate is 6% per year. The lessors implicit rate is not known by Buffalo Corp. | |
6. | The yearly rental payment includes $1,609.45 of executory costs related to insurance on the equipment. |
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