Question 1 15 MARKS

On 1 July 2020, London Ltd leased a tea-making machine from Paris Ltd. Paris Ltd had purchased the machine on that day for its fair value of $112,120. The lease agreement contained the following provisions:

Lease term	3 year
Initial payment on 1 July 2020	$30,000
Annual rental payment, in arrears (three payments commencing 30 June 2021)	$31,000
Residual value at end of the lease term	$10,000
(Proportion of residual guaranteed by lessee)	(100%)
Interest rate implicit in lease	10%

The lease is cancellable only with the permission of the lessor. The expected useful life of the machine is 5 years. London Ltd intends to return the machine to the lessor at the end of the lease term. Included in the annual rental payment of $31,000 is an amount of $1,000 to cover the costs of maintenance and insurance paid for by the lessor.

Note: If necessary, use the following present value factors:

Present value of $1 (3 years, 10%) = 0.7513

Present value of an annuity of $1 (3 years, 10%) = 2.4869

REQUIRED

1. Provide journal entries for the year ending 30 June 2021 as shown in the books of London Ltd (the lessee) in accordance with AASB 16 Leases. Exclude journal narrations. Round to the nearest dollar amount. (8 marks)

1. Provide journal entries for the year ending 30 June 2021 as shown in the books of Paris Ltd (the lessor) in accordance with AASB 16 Leases. Exclude journal narrations. Round to the nearest dollar amount. (7 marks)