Q10.14 -

As of 1 July 2019, Acer Ltd leases a building from Hill Ltd. The building has a fair value at 1 July 2019 of $1 972 000. The lease agreement details are as follows.

Length of lease	10 Years
Commencement date	1 July 2019
Annual lease payment, payable 30 June each year commencing 30 June 2020	$350,000
Estimated economic life of the building	10 Years
Residual value at the end of the lease term	$20 000
Residual value guarantee by Acer Ltd	$14 000
Interest Rate implicit in the lease	10%

The lease is cancellable, but a penalty equal to 50% of the remaining lease payments is applicable on cancellation. Acer Ltd incurred $1331 to negotiate and execute the lease agreement. All insurance and maintenance costs are paid by Hill Ltd and are expected to amount to $30 000 per year and will be reimbursed by Acer Ltd by being included in the annual lease payment of $350 000. The building is to be depreciated on a straight?line basis.

1. Calculate the initial direct costs incurred by Hill Ltd to negotiate and execute the lease agreement.?

2. Indicate the amounts recorded as right?of?use asset and lease liability by Acer Ltd and the amount recorded as lease receivable by Hill Ltd at the beginning of the lease in their respective books.

3. Prepare the journal entries to account for the lease in the books of Acer Ltd for the year ended 30 June 2020.

4. Calculate the current and non?current lease liability as of 30 June 2020 relating to the lease.