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Hall Ltd (Customer) enters into a contract with Telco Ltd (Supplier), a telecommunications provider, for network services for three (3) years. The contract stipulates that
Hall Ltd (Customer) enters into a contract with Telco Ltd (Supplier), a telecommunications provider, for network services for three (3) years. The contract stipulates that Telco Ltd must provide network services at a specified level of quality. To provide the network service, Telco Ltd installs and configures the network servers at Hall Ltd's premises. Telco Ltd can replace the network servers at any time to ensure an uninterrupted service to Hall Ltd. Telco Ltd operates the network servers and Hall Ltd cannot make any significant decisions about their use. All decisions about speed of data transmission in the network server is made by Telco Ltd. In accordance with AASB 16 Leases, should the contract between Hall Ltd and Telco Ltd be treated as a lease contract in Hall Ltd.'s books? Explain your reasoning. (4 marks) Type your answer to Q. 4.1 in the ANSWER BOX below. Q4.2 6 Points On 1 July 2018, Candle Ltd commenced the lease of machinery for use in its manufacturing operations. Key details of this lease agreement were as follows: - Non-cancellable lease term of four years. - Annual lease payments of $50,000, commencing 30 June 2019. - Annual Maintenance \& Insurance included in annual lease payments $10,000. - Residual value guaranteed by lessee of $50,000. - Expected Fair value at end of lease term is $45,000. - The interest rate implicit in the lease is 8% p.a. - Candle Ltd does NOT intend purchasing the machinery at the end of the lease term. - The machinery's expected useful life is seven years with a scrap value of $30,000. Prepare journal entries related to the above lease contract in the books of Candle Ltd (the lessee) for the year ended 30 June 2022 (i.e., the end of the lease term). (Round your answers to the nearest whole dollar) ( 6 marks) Upload your answer to Q. 4.2 in PDF below
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