On 1 July 2020, Mango Ltd leases an aircraft from Kulula Ltd for five years. The fair value of the aircraft is $9.5 million. Under the terms of the lease arrangement, Mango Ltd is required to make five annual payments of $2 million with the first payment due immediately. Each repayment includes $120,000 for maintenance arranged by the lessor. The lease has an interest rate of 13%. The residual value of the aircraft is $3 million, of which Mango guarantees 65%. The aircraft has a useful life of six years. Required (round all answers to the nearest dollar) .- 2 marks Calculate the present value of Mango's minimum lease payments. Prepare journal entries in Mango's books on 1 July 2023 ii 3 marks Treat the following scenarios as independent e.g. your answer to (iii) does not affect your answer to (iv) and (v). Before the lease agreement was finalized, Kulula Ltd offered Mango Ltd the 4 marks opportunity to purchase the aircraft for $1.5 million at the end of the lease. Outline the benefits and risks to Mango Ltd if it accepts the proposal, providing supporting calculations. iv Kulula Ltd is an aircraft manufacturer. 3 marks Prepare Kulula's journal entries at inception of the lease, assuming it makes a profit of $1.5 million on the lease to Mango Ltd. Prior to the lease, Mango Ltd owned the aircraft. It had a cost of $12 million 3 marks and had been depreciated by $4 million. It sold the aircraft to Kulula Ltd and immediately leased it back. Prepare Mango Ltd's journal entries for the sale portion of the lease and analyse how it benefits from this arrangement. V Use these Present Value factors to answer the questions. Period PV factor @ 13% PV annuity factor @ 13% 1 0.8850 0.8850 2 0.7831 1.6681 3 0.6931 2.3612 4 0.6133 2.9745 5 0.5428 3.5173 On 1 July 2020, Mango Ltd leases an aircraft from Kulula Ltd for five years. The fair value of the aircraft is $9.5 million. Under the terms of the lease arrangement, Mango Ltd is required to make five annual payments of $2 million with the first payment due immediately. Each repayment includes $120,000 for maintenance arranged by the lessor. The lease has an interest rate of 13%. The residual value of the aircraft is $3 million, of which Mango guarantees 65%. The aircraft has a useful life of six years. Required (round all answers to the nearest dollar) .- 2 marks Calculate the present value of Mango's minimum lease payments. Prepare journal entries in Mango's books on 1 July 2023 ii 3 marks Treat the following scenarios as independent e.g. your answer to (iii) does not affect your answer to (iv) and (v). Before the lease agreement was finalized, Kulula Ltd offered Mango Ltd the 4 marks opportunity to purchase the aircraft for $1.5 million at the end of the lease. Outline the benefits and risks to Mango Ltd if it accepts the proposal, providing supporting calculations. iv Kulula Ltd is an aircraft manufacturer. 3 marks Prepare Kulula's journal entries at inception of the lease, assuming it makes a profit of $1.5 million on the lease to Mango Ltd. Prior to the lease, Mango Ltd owned the aircraft. It had a cost of $12 million 3 marks and had been depreciated by $4 million. It sold the aircraft to Kulula Ltd and immediately leased it back. Prepare Mango Ltd's journal entries for the sale portion of the lease and analyse how it benefits from this arrangement. V Use these Present Value factors to answer the questions. Period PV factor @ 13% PV annuity factor @ 13% 1 0.8850 0.8850 2 0.7831 1.6681 3 0.6931 2.3612 4 0.6133 2.9745 5 0.5428 3.5173
