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PR Pte Ltd is a retailer-lessor which is in the business of selling machinery. PR Pte Ltd buys the machinery at a cost of $60,000

PR Pte Ltd is a retailer-lessor which is in the business of selling machinery. PR Pte Ltd buys the machinery at a cost of $60,000 per unit and either sells them or leases them to its customers depending on customers' preferences. The selling price of the machinery is $100,000.

On 1 January 20X1, PR Pte Ltd signed a lease agreement with a customer, AA Pte Ltd, for one piece of machinery. The fair market interest rate is 25%. There is one lease payment due to PR Pte Ltd at the end of December 20X1.

PR Pte Ltd adopts FRS 116 Leases and its financial year-end is 31 December. Required:

  1. (a)Apply FRS 116 Leases and prepare the journal entries to record this lease arrangement for PR Pte Ltd for the year ended 31 December 20X1. Round your answer to the nearest number. Show all workings. Assume that the firms adopt a perpetual inventory system, where applicable.
  2. (b)Suppose the customer, AA Pte Ltd, drives a hard bargain and PR Pte Ltd charges them a below-market interest rate of 10% instead. Apply FRS 116 Leases and prepare the journal entries to record this lease arrangement for PR Pte Ltd for the year ended 31 December 20X1. Round your answer to the nearest number. Show all workings. Assume that the firms adopt a perpetual inventory system, where applicable.

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