Quartz Auto Limited (QAL) is engaged in the business of manufacturing of trucks. Since a number of the prospective customers do not have adequate funds to purchase the vehicles against full payment, QAL provides lease financing facility to its customers. It expects to receive a return at the rate of 17% per annum on the amount of lease finance. On 1 July 2014, QAL sold seven trucks to Emerald Goods Transport Company (EGTC) on lease. The terms of the lease and related information are as follows:

The lease period is 4 years, extendable up to the expected useful life of the trucks i.e. 6 years.

EGTC has guaranteed a residual value of Rs. 360,000 for each truck, till the end of the fourth year. However, the guarantee would lapse if the lease term is extended to the fifth year. EGTC will return the truck at the end of the lease term.

Lease rentals amount to $2,715,224 per annum and are payable in arrears i.e. on 30 June.

The cost of each truck is $900,000. Price in case of outright sale is $1,350,000 per truck.

The expected residual value of each truck at the end of the 4th. 5th and 6th year is $150,000, $100,000 and 80,000 respectively. Required: Assuming that QAL and EGTC intend to extend the lease for a period of five years,

Required:

(a) Journal entries to record the transactions for the year ended 30 June 2015.

(b) A note for inclusion in the financial statements, for the year ended 30 June 2015, in accordance with the requirements of IAS 17 Leases.

Question 2 (marks 10) Quartz Auto Limited (QAL) is engaged in the business of manufacturing of trucks. Since a number of the prospective customers do not have adequate funds to purchase the vehicles against full payment, QAL provides lease financing facility to its customers. It expects to receive a return at the rate of 17% per annum on the amount of lease finance. On 1 July 2014, QAL sold seven trucks to Emerald Goods Transport Company (EGTC) on lease. The terms of the lease and related information are as follows: (1) The lease period is 4 years, extendable up to the expected useful life of the trucks i.e. 6 years. (ii) EGTC has guaranteed a residual value of Rs. 360,000 for each truck, till the end of the fourth year. However, the guarantee would lapse if the lease term is extended to the fifth year. EGTC will return the truck at the end of the lease term. Lease rentals amount to $2,715,224 per annum and are payable in arrears i.e. on 30 June. (iv) The cost of each truck is $900,000. Price in case of outright sale is $1,350,000 per truck. (v) The expected residual value of each truck at the end of the 4th 5th and 6th year is $150,000, $100,000 and 80,000 respectively. Required: Assuming that QAL and EGTC intend to extend the lease for a period of five years, Required: (a) Journal entries to record the transactions for the year ended 30 June 2015. (b) A note for inclusion in the financial statements, for the year ended 30 June 2015, in accordance with the requirements of IAS 17 'Leases'. 11) Question 2 (marks 10) Quartz Auto Limited (QAL) is engaged in the business of manufacturing of trucks. Since a number of the prospective customers do not have adequate funds to purchase the vehicles against full payment, QAL provides lease financing facility to its customers. It expects to receive a return at the rate of 17% per annum on the amount of lease finance. On 1 July 2014, QAL sold seven trucks to Emerald Goods Transport Company (EGTC) on lease. The terms of the lease and related information are as follows: (1) The lease period is 4 years, extendable up to the expected useful life of the trucks i.e. 6 years. (ii) EGTC has guaranteed a residual value of Rs. 360,000 for each truck, till the end of the fourth year. However, the guarantee would lapse if the lease term is extended to the fifth year. EGTC will return the truck at the end of the lease term. Lease rentals amount to $2,715,224 per annum and are payable in arrears i.e. on 30 June. (iv) The cost of each truck is $900,000. Price in case of outright sale is $1,350,000 per truck. (v) The expected residual value of each truck at the end of the 4th 5th and 6th year is $150,000, $100,000 and 80,000 respectively. Required: Assuming that QAL and EGTC intend to extend the lease for a period of five years, Required: (a) Journal entries to record the transactions for the year ended 30 June 2015. (b) A note for inclusion in the financial statements, for the year ended 30 June 2015, in accordance with the requirements of IAS 17 'Leases'. 11)