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IGNORE VAT A Limited (a dealer and manufacturer) sold a vehicle to B Limited under a finance lease agreement. The fair value of the vehicle
IGNORE VAT A Limited (a dealer and manufacturer) sold a vehicle to B Limited under a finance lease agreement. The fair value of the vehicle is R600 000 on transaction date. These are the only transactions entered into by A Limited for the year. The cost price of the vehicle to A Limited was R500 000. The details of the lease agreement are as follows: Inception of lease: 1 January 2021. Lease period: 5 years. Lease instalments R150 000, payable annually in arrears on 31 December. Guaranteed residual value: R50 541 payable 31 December 2025. Interest rate 10%. The income tax rate is 28% and capital allowances are 40% in year 1, 30% in year 2. 20% in year 3 and 10% in year 4. Required: Show all journal entries relating to the finance lease for the year ending 31 December 2021 in the books of A Limited. A Limited uses the gross method to account for finance leases
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