On 1 July 2019, Koolkat Ltd leased an air conditioning system from Icebreaker Ltd. Icebreaker Ltd had purchased the machine on that day for its fair value of $197 541. The lease agreement contained the following provisions:

Lease term

Initial payment on 1 July 2019

Annual rental payment, in arrears (three payments commencing 30 June 2020)

Residual value at end of the lease term

(Proportion of residual guaranteed by the lessee)

Interest rate implicit in lease

3 years

$50 000

$62000

$20000

(100%)

7%

Present Value of an Annuity of $1 for 3 years @ 7%

2.6243

Present Value of $1 in 3 years @ 7%

0.8163

The lease is cancellable only with the permission of the lessor. The expected useful life of the machine is 4 years. Included in the annual rental payment of $62 000 is an amount of $12 000 to cover the costs of maintenance and insurance paid for by the lessor.

REQUIRED

a.Journal entries for the year ending 30 June 2020 as shown in the books of Koolkat Ltd (the lessee) in accordance with AASB 16Leases. Exclude journal narrations.

b.Journal entries for the year ending 30 June 2020 as shown in the books of Icebreaker Ltd (the lessor) in accordance with AASB 16Leases. Exclude journal narrations.