Question 4 (15 marks)

On 1st of July 2021, Silly Ltd leased a machine from Andre Ltd. The machine had a fair value of $95,055 on 1 July 2021. The lease agreement contained the following provisions:

Lease term 3yrs

Annual Rental, first payment 30/06/2022 $30 000

Residual value at end of the lease term $20 000

Residual guaranteed by lease $10 000

Interest rate implicit in lease 7%

The lease is cancellable only with the permission of the lessor. The expected useful life of the machine is 4 years. Silly Ltd intends to return the machine to the lessor at the end of the lease term.

The annuity factor for Single Payment T1 (7%, n=3) = 0.8163

The annuity factor for T2 (7%, n=3) = 2.6243

Part A- ( 1 marks)

Calculate Present value of Lease Payments.

Part B- (5 marks)

Prepare a Lease Payments Schedule for the lessee? Show all workings

Part C- (2 marks) Prepare journal entries for the lessee to record the lease for the year ended 30.06.2023.

Show all workings

Part D- (5 marks)

Prepare a Lease receipts Schedule for the lessor. Show all workings

Part E- (2 marks)

Prepare journal entries for the lessor to record the lease on 30.06.2023. Show all workings