Question
(i) On 1 April 2019 GHL purchased an equipment and simultaneously leased it to SG Health Services Ltd (SHS), an unrelated company in Singapore, on
(i) On 1 April 2019 GHL purchased an equipment and simultaneously leased it to SG Health Services Ltd (SHS), an unrelated company in Singapore, on the following terms:
Lease term (with no cancellation clause) 5 years
Remaining useful life of equipment 7 years
Carrying amount and fair value of equipment at 1 April 2019 $918,124
Annual instalment receivable in arrears $225,000
Interest rate implicit in lease (per annum) 10%
Residual value guaranteed by SHS at 31 March 2024 $91,500
Expected residual value at 31 March 2024 $105,000
Question: GHL has treated the contract as an operating lease and recognized lease rental income of $225,000. Depreciation of $131,161 has been charged to the statement of profit or loss.
identify the classification of lease with reason for the lease entered by GHL in accordance with HKFRS 16?
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