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On 1 March 20X7, a company enters into a lease agreement to rent equipment with a fair value of $850,000. The lease terms are as
On 1 March 20X7, a company enters into a lease agreement to rent equipment with a fair value of $850,000.
The lease terms are as follows:
- The lease term commenced on 1 March 20X7.
- The lease term is 5 years, there is no renewal option.
- The economic life of the equipment is 7 years.
- Annual lease payments are $225,000, due at the beginning of each lease year. Included in this payment is $30,000 for maintenance services.
- The asset reverts back to the lessor at the end of the lease.
- The unguaranteed residual value is $130,000 at the end of the lease term.
- The lessees year end is 31 December.
Other important notes:
The lessees incremental borrowing rate is 7%. The rate implicit in the lease is 12.71%.
Required:
Prepare the journal entry to record the lease on 1 March 20X7, by the lessee, using IFRS
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