Question
Question 11. C Ltd has a fiscal year end of Sep. 30th. On Oct. 1, 20X8 C Ltd leases an asset to a lessee
Question 11. C Ltd has a fiscal year end of Sep. 30th. On Oct. 1, 20X8 C Ltd leases an asset to a lessee for a term of five years. The lessee is required to make five lease payments of 27,500, starting with Oct 1, 20X8. The fair value of the asset on Oct 1, 20X8 is 113,500. C Ltd incurs initial direct costs of 421 and the rate of interest implicit in the lease is 12%. At the end of the lease term, ownership of the asset will remain with C Ltd, the asset is expected to have come to the end of its economic life and to have a residual scrap value of 5,100. i) Provide two reasons for why this lease is a finance lease and not an operating lease. ii) Calculate the net investment in the lease at commencement. iii) Prepare lessor's journal entries for the year ending Sep. 30th, 20X9.
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