Question 5 Yellowstone Limited ("Yellowstone") acquired a machine from Red Limited under a 3-year non-cancellable lease on 1 January 2019. According to the terms of the lease, Yellowstone is required to make 3 equal annual lease payments of $250,000 at the beginning of each year. The interest rate implicit in the lease is 6%. On 1 January 2019, Yellowstone made the first lease payment and settled a legal cost of $19,221 to obtain to lease. At the end of the lease, the lessor would not grant any ownership of the machine to Yellowstone. The machine has a useful life of 4 years. Yellowstone accounts for the lease in accordance with HKFRS 16 Leases. Required: (a) Calculate the present value of the lease payments on 1 January 2019. (2 marks) (b) Prepare an amortisation schedule to calculate the interest expense and lease liability for Yellowstone Limited for the whole of the lease term. (6 marks) (e) Prepare an extract of the statement of financial position for Yellowstone Limited for the year ended 31 December 2019. (4 marks) (d) Evaluate the classification of the lease by Red Limited. Assume that fair value of the machine on 1 January 2019 was $720,000. (6 marks) Round all figures to the nearest dollar. (Total 18 marks) Question 3 (A) New Century Limited operates a retail business in Hong Kong with its accounting year ended 31 December. The functional currency of the company is Hong Kong dollars (HK$). On 1 April 2019, the company bought goods from a foreign supplier for FC50,000 on credit. The amount was settled in full on 1 June 2019. On 1 September 2019, the company bought goods from the foreign supplier again for FC81,000. Half of the amount was settled on 30 October 2019. The following exchange rates are relevant: 1 April 2019 1 June 2019 1 September 2019 30 October 2019 31 December 2019 FC2.0 = HK$1 FC2.5 = HK$1 FC3.0 = HK$1 FC2.7 = HK$1 FC2.5 = HK$1 Required: Prepare journal entries (without narratives) in the books of New Century Limited to record the above transactions for the year ended 31 December 2019 in accordance with HKAS 21 The Effects of Changes in Foreign Exchange Rates. (10 marks)
