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Lessee Ltd has requested your help in preparing the journal entry to initially recognise the ROU asset and the lease liability, at the commencement date,
Lessee Ltd has requested your help in preparing the journal entry to initially recognise the ROU asset and the lease liability, at the commencement date, for the two leases below. Both leases are five year leases with an incremental borrowing rate of 8%. The relevant present value (PV) discount factors are: PV of $1 in 5 periods = 0.6806, and PV of an annuity = 3.9927. Lease details: Lease 1 $800 per annum $800 x 3.9927 = $3 194 Fixed payments made at year end Lease 2 $2 500 per annum $2 500 x 3.9927 = $9 982 $280 $280 x 0.6806 = $191 Amount expected to be payable under a RVG Purchase option - the lessee is reasonably certain to exercise. $500 $500 x 0.6806 = $340 Lease payment made on commencement date $466 IDC incurred by the lessee $178 Estimate of costs to restore the asset at the end of the lease term $1 000 $1 000 x 0.6806 =$681
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