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Burwood Ltd enters into a non - cancellable contract with Go - Get Ltd to use a truck for a period of three years. The

Burwood Ltd enters into a non-cancellable contract with Go-Get Ltd to use a truck for a period of three
years. The truck is explicitly specified in the contract, and Burwood Ltd decides where the truck will be
driven, what cargo will be transported and when the truck will be used. Go-Get Ltd has the right to replace
the truck with another truck, which is identical to the first truck, when Go-Get Ltd performs maintenance
on the original truck. In addition, Go-Get Ltd has some restrictions in the contract, specifically, that
Burwood Ltd cannot haul explosives in the truck.
Burwood Ltd pays $35,000 on signing the agreement on 1 July 2023. The truck is expected to have an
economic life of five years, after which time it will have an expected salvage value of $22,000. There is a
purchase option which Burwood Ltd is willing to exercise at the end of the lease term for $63,000. If this
purchase option is exercised the truck will be transferred to Burwood Ltd.
There are six half-yearly payments of $123,000, the first being made on 31 December 2023. Included
within the $123,000 lease payments is an amount of $20,000 representing payment to Go-Get Ltd for
insurance and maintenance of the truck. The truck is to be depreciated on a straight-line basis. The rate
of interest implicit in the lease is 12% per annum

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