Customer Corp. entered into a five-year lease agreement with Supplier Ltd, on 1 July 2019. The lease is for a number of spa baths. Supplier Ltd acquired the spa baths on 1 July 2019, at the fair value of $1,009,850. Customer Corp. uses the spa baths at a club. The baths are expected to have an economic life of seven years, after which time they will have no residual value. There is a bargain purchase option that Customer Corps will be able to, and is expected to, exercise at the end of the fifth year, for $100,000.

There are to be five annual payments of $250,000, due at the end of each fiscal year (i.e., on 30 June each year). Customer Corp. is responsible for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. The interest rate implicit in the lease is 10% per year. The lease can be cancelled by Customer Corp. upon payment of a penalty of $700,000.

REQUIRED:

(1) What type of lease is this for Supplier Ltd? Provide justifications for your classification considering the criteria in AASB 16 Leases.

(2) Prepare the journal entries, including narrations, for Supplier Ltd from 1 July 2019 to 30 June 2020 to record the lease arrangement consistent with AASB 16 Leases.

(3) For Customer Corp. the contract contains a lease. Prepare the journal entries, including narrations, for Customer Corp. from 1 July 2019 to 30 June 2020 to record the lease arrangement consistent with AASB 16 Leases.

Present value interest factor of $1 per period at i% for n periods, PVIF(i,n). Period 1% 2% 3% 4% 5% 6% 7% 8% 926 2 0.980 | 0.961 | 0.943 0.925 0.907 0.890 0.873 0.857 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 6 0.942 0.888 0.8370.790 0.746 0.705 0.6660.630 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 120.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 16 0.853 0.728 0.623 0.534 0.458 0.394 0.3390.292 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 180.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 190.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 200.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 250.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 350.706 0.500 0.355 0.253 0.181 0.130 0.094 0.068 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.049 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.7180.706 0.694 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.3140.296 0.279 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.2490.233 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.386 0.352 0.322 0.295 1 0.270 0.247 0.227 | 0.208 1 0.191 1 0.176 0.162 0.350 0.3170.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.263 0.232 0.205 0.181 0.1600.141 0.125 0.111 0.099 0.088 0.078 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.218 0.1880.163 0.141 0.123 0.107 | 0.093 0.081 0.071 0.062 0.054 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.1800.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.164 0.138 0.116 0.098 0.083 0.070 | 0.060 0.051 0.043 0.037 0.031 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.092 0.074 | 0.059 0.047 0.038 0.030 0.024 0.020 0.0160.013 0.010 0.057 0.044 0.033 0.026 0.0200.015 0.012 0.0090.007 0.005 0.004 0.036 0.026 0.019 0.014 0.010 0.008 0.006 0.004 0.003 0.002 0.002 5 0.011 | 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.009 0.005 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 Page 4 of 5 | 40 Period | 18 ) 2% 3% 4% 5% 6% 7% 8% 9% 10% 1% | 12% | 13% | 14% 15% | 16%] 17%] 18% 19%] 20% | 1990 | 0.980 | 0.971| 01962 | 09521 0.9431 0.935] 0,926 | 0.917 10.90 0.901 | 0.93 | ,885 | 0.877 | 0.87] 0.86210.855 | 0.47] 0.8401 0.833 2 | 1.97 | 1.942 | 1913 | 1.86] 1.559 | 1.833 | 1.805 | 1.783 | 1.759 | 1.73| 1.713 | 1.690 | 1,668 | 1.647] 1.625] 1.605] 1.585] 1.5] 1.547 | 1.528 2.41] 2.884 ) 2.829] 2.775 | | 2.723] 2.673] 2.524 | 2.577 | 2.531 | 2.48] 2.444 | 2.402 | 2.361 | 2.322] 2.283] 2.246] 2.210] 2.174] 2.140] 2.106 3.902 | 13.008 | 3.717 | | 3.630 | 13.546 | | 3.465 | 3.387 | 3.312 | 3.240 | 3.17 | 3.102 | 3.037 | 2.974 | 2.914 | 2.855 | 2.798 | 2.743 | 2.690 | 2.639 | 2.589 4,853 4.713 4.50] 4.452 | 4.3291 4,212 | 4.100 | 3.993 | 3.890 3.79] 3.696 | 3.605 | 3.517 | 3.4.33 | 3.352] 3.274] 3.199| 3.127] 3.058| 2.991 5.795] 15.601 | 5417 || 15.242 | | 5.076 | | 4.917 | 4.767 | 4.623 | 4486 | 4.35] 4.231 | 4.111 | 3.998 | 3.889 | 3.784 | 3.685| 3.589 | 3.498 | 3410 | 3.326 6.728] 642 6.230 ) 5.002] 5.786 | 15.552 | 5.38] 5.206 15.033 | 4.56 | 4.712 14.564 | 4.423 | 4.28] 4.1 4.03913922 13.81213. 75] 3.605 7.65217325 | | 7.020 | 6.733 | 5463 6.210 | 5.971] 5.747 | 5.535 | 5.333 5.146 | 4.968 | 4.799 | 4.639] 4.487 | 4.344] 4.207] 4.078 | 3.94] 3.837 8.56] 8.12] 7786| 7.435) 7.108] 6.802 | 5.515| 6.247] 5.995 15.7 5.537 15.328 15.132 14.946 4.772 | 4.60714.45114.303 14.163 | 4.031 | 9.471) 8.983] 8.530 ) 8.111) 7.722 ) 7,360 | 7.024] 6.7 10 | 6.418 | 6.145| 5.889 | 5.650 15.426 | 5.216 | 5.019] 4.8331 4.659 | 4.494 14.339 14.192 | 10.368 | 9.787] 9.253 | 8.760 | 8.306 | 7.887 | 7.499 | 7.139 | 6.805 | 6.49] 6.207 | 5.938 | 5.687 | 5.453 | 5.234 | 5.029 | 4.836 | 4.656 | 4.486 | 4.327 12 | 11.255 | 10.575] 9.954 | | 9.365) 8.863) 8.384) 7.943] 7.536 | 7.151] 5.814| 6.492 | 6.194 | 5.918 | 5.660 | 5.4211 5.1971 4.988 | 4.793 14.6111 4.439 | 13 | 12.134 | 11.348 | 10.635 | 9.98] 9.394 | 8.853 | 8.358 | 7,904 | 7.487 | 7.10] 6.750 | 6.424 | 5.122 | 5.842 | 5.583 | 5.342 | 5.118 | 4.910 | 4.715| 4.533 106 | 11.296 | 10.663 19.899 | 9.295 | 8.745 | 8.244 | 7.786 | 7.367 6.982 | 6.628 | 6.302 16.002] 5.724] 5.468] 5.229] 5.008 | 4.802] 4.6111 15 | 13.865 | 12.849 | 11.938 | 11.118 | 10.380 | 9.712 | 9.108 | 8.559 | 8.061] 7.50 | 7.191 | 6.811 | 6.462 | 6.142 | 5.847] 5.575] 5.324 | 5.092 | 4.876 | 4.675 16] 14.718 113.578 | 12.561 | 11.652 | 10.238 | 10.106 | 9.447] 8.851] 8.313 | 7.82] 7.379 | 6.974 | 6.604 | 6.265 | 5.954 | 5.6681 5.405 | 5.162 | 4.9381 4.730 | 17 | 15.562 | 14.292 | 13.16 | 12.166 | 11.274 | 10.47] 9.763 | 9.122 | 8.54 | 8.02 7.549 | 7120 | 6.729 | 6.373] 6.047 | 5.749] 5.475] 5.222 | 4.990 | 4.775 18 | 16.398 | 14.992 | 13.754 | 12.659 | 11.690 | 10.828 | 10.059 19.372 | 8.756 | 8.20] 7.702 | 7.250 | 6.840 | 6.467 6.128 | 5.818] 5.534 | 5.273 | 5.033 | 4.812 19] 17.226 115.678 14.324 | 13.134 | 12.085 11.158 | 10.336 19.604 | 8.950 | 8.33 7.839 17.366 | 6.938 | 6.550 | 6.1981 5.8771 5.584 | 5.316 | 5.070 | 4.843 20 | 18.046 | 16.351 | 14.877 | 13.590 | 12.462111.470 | 10.594 19.818 | 9.129 | 8.5147.963 17.468] 7.025 16.623 16.25] 5.92915.628 | 5.353 15.101 | 4.70 | 25 | 22.023 | 19.523 | 17.413 | 15.622 | 14.094 | | 12.733 | 11.654 | 10.675 | 9.823 | 9.07] 8.422 | 7.843 | 7.330 | 6.873 | 6.464 | 6.097 | 5.766 | 5.467 | 5.15| 4.948 30|25.808 22.396 19.600 | 17,292 | 15.372 13.765 | 12.409 | 11.258 | 10.274 | 9.42] 8.694 18.055 | 7.496 17.003 | 6.566 16.1771 5.829 | 5.5171 5.235] 4.979 35 | 28.409 | 24.999 | 21.487 | 13.665 16.374 114.498 | 12.948 | 11.655| 10.567] 9.64] 8.855 18.176 17.58 17.0701 6.617 16.2151 5.858 5.5.39 15.251 | 4.992 | 40 | 32.335 | 27.355 | 23.15 | 19.793 | 17.159 | 15.046 | 13.332 | 1.925 10.757 | 9.79 8.951] 8.244 | 7.634 17.105 | 6.642 | 6.233] 5.871 5.548 | 5.258 | 4.997 | 50 | 39.196 131.424 | 25.730 | 21.482 | 12.256 | 15.762 | 13.8011 12.233 | 10.962 9.90 9.042 | 8.304 | 7.675 7.133 | 6.661] 6.246 | 5.8eo | 5.554| 5.262] 4.999| Page 5 of 5