Question 1:

On 1 January 20X3, Specialist Ltd entered into two lease agreements; one for a plant and the other for office equipment. The terms of each lease are as follows:

The plant was leased under an agreement which requires Specialist Ltd to make annual payments of $150,000 on 31 December each year, commencing on 31 December 20X3, for 3 years. Specialist Ltd does not have an option buying the asset. The plant has a useful life of 7 years. The interest rate implicit in the lease is 8%. To obtain the lease, Specialist Ltd incurred initial costs of $20,000. The lessor reimbursed $12,000 of these costs.

The second lease agreement is an office equipment which was leased for 4 years. Under the agreement, Specialist Ltd is required to pay a non-refundable deposit of $500 on 1 January 20X3 and to make a payment of $800 at the end of each year, starting from 31 December 20X3. Specialist Ltd elected the exemption from the lease requirements.

Requirement:

Calculate the relevant numbers and provide the double entries needed to record the lease arrangements and show the impact of the lease arrangements on the financial statements for the year ended 31 December 20X3.