Question
Pearl Ltd entered into an agreement on 1 July 2022 to lease a processing plant with a fair value of $569 230 to Aristotle Ltd.
- Pearl Ltd entered into an agreement on 1 July 2022 to lease a processing plant with a fair value of $569 230 to Aristotle Ltd. The terms of the lease agreement were:
| Lease term | 3 years |
| Economic life of plant | 5 years |
| Annual rental payment, in arrears (commencing 30/6/23) | $225 000 |
| Residual value of plant at end of lease term | $50 000 |
| Residual value guarantee by Einstein Ltd | $20 000 |
| Interest rate implicit in the lease | 6% |
| The lease is cancellable, but only with the permission of the lessor. |
|
At the end of the lease term, the plant is to be returned to Pearl Ltd. In setting up the lease agreement Pearl Ltd incurred $7350 in legal fees and stamp duty costs. The annual rental payment includes $25 000 to reimburse Pearl Ltd for maintenance costs incurred on behalf of Aristotle Ltd.
Required:
- Prepare a lease payments schedule and the journal entries in the records of Aristotle Ltd for the year ended 30 June 2023. Show all workings.
- Prepare a lease receipts schedule and the journal entries in the records of Pearl Ltd for the year ending 30 June 2023. Show all workings.
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