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Question: Orica Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with Sm...

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Orica Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with Smart Equipment Ltd on 1January 2015. The lease consists of the following:

Date of inception 1/1/2015

Duration of lease: 4 years

Life of leased asset: 5 years

Lease payments (annual) $160,000 (annual) which include $20,000 for maintenance and insurance costs per annum

Guaranteed residual value (added to final payment) $60,000

Interest rate 10%

Required:

a) Determine the present value of minimum lease rental payment.

b) Prepare the journal entries for the Lessee using the Net Method for the following i. Transfer of control ii. Payment of annual payments for 2015 and 2016

c) How will the lease be shown in the financial statement of lessee at the end of 2016?

d) What exemptions are available under AASB 16 that would allow a lessee not to capitalise lease assets and lease liabilities?

e) Provide an overview of how accounting for leases was changes as result of the release of AASB 16 Leases.

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