QUESTION FIVE On 1 July 2018, Atrill Ltd enters into a 5-year contract to lease a special machine for its drilling business (useful life 8 year, no residual value). The contract requires 5 annual payments of $40,000 starting on 30 June 2019. On 1 July 2018, Atrill incurs a $20,000 initial cost that would not have been incurred without entering the contract. There is also a bargain purchase price option that Atrill will take up at the end of the contract for $10,000. The implicit interest rate is 12% and the present values at that rate are the following: Interest Rate Present Value of $1 in 5 years Present Value of an annuity of $1 for 5 years 12% 0.5674 3.6048 REQUIRED (a) Determine the amounts of the lease liability and the right-to-use asset cost as at 1st July, 2018 in the books of Atrili Ltd in accordance with AASB 16 Leases. (b) In preparation for the journal entries in Atrill Ltd books. Complete the lease payment schedule for 30 June 2019 and 30 June 2020, copying the table below in your answer sheet. Lease Interest Principal Outstanding payment expense reduction lease liability 1 July 2018 30 June 2019 30 June 2020 (c) Provide the journal entries for Atrill Ltd to record the lease agreement on commencement date (1 July 2018) and all the journal entries ending 30 June 2019 in accordance with AASB16 Leases. QUESTION FIVE On 1 July 2018, Atrill Ltd enters into a 5-year contract to lease a special machine for its drilling business (useful life 8 year, no residual value). The contract requires 5 annual payments of $40,000 starting on 30 June 2019. On 1 July 2018, Atrill incurs a $20,000 initial cost that would not have been incurred without entering the contract. There is also a bargain purchase price option that Atrill will take up at the end of the contract for $10,000. The implicit interest rate is 12% and the present values at that rate are the following: Interest Rate Present Value of $1 in 5 years Present Value of an annuity of $1 for 5 years 12% 0.5674 3.6048 REQUIRED (a) Determine the amounts of the lease liability and the right-to-use asset cost as at 1st July, 2018 in the books of Atrili Ltd in accordance with AASB 16 Leases. (b) In preparation for the journal entries in Atrill Ltd books. Complete the lease payment schedule for 30 June 2019 and 30 June 2020, copying the table below in your answer sheet. Lease Interest Principal Outstanding payment expense reduction lease liability 1 July 2018 30 June 2019 30 June 2020 (c) Provide the journal entries for Atrill Ltd to record the lease agreement on commencement date (1 July 2018) and all the journal entries ending 30 June 2019 in accordance with AASB16 Leases
