Question 5)

Cessar Ltd leased a Scania heavy truck for the transportation of citizens between prisons in Victoria. The lease agreement contained the follwing provisions.

Lease term: 4 years

Rental payments made semi- annually (commencing 1 Jan 2020 on delivery and payable 30./06 and 31/12 and thereafter: 67,500

Implicit Interest Rate: 10% p.a.

It is intended at the end of the lease term that the truck, which has an economic life of 10 years, will be returned to the lessor, Hutchins Truck Limited. The rental payments include an amount of $7,500 per half year to cover the cost of insurance arranged and paid for by Hutchins Truck Finance Ltd. Cassar incurred legal expenses in the preparation of the lease documentation of $12,000.

Required: Prepare the journal entries for Cassar Ltd on:

1) 1 Jan 2020

2) 30 June 2020