Question
Supply Ltd entered into a non-cancellable five-year lease arrangement with Customer Ltd on 1 July 2019. The leased asset is a machine with an estimated
Supply Ltd entered into a non-cancellable five-year lease arrangement with Customer Ltd on 1 July 2019. The leased asset is a machine with an estimated useful life of six years and a salvage value of zero. There are to be five annual lease payments of $80,000, the first being made on 30 June 2020. Customer Ltd determined that this contract contains a lease. There is a bargain purchase option that Customer Ltd will be able and likely to exercise at the end of the lease term for $30,000. The implicit interest rate is 12%.
Do not include commas and dollar sign ($) in your answer. Present $1,000 as 1000. Round all your answers to the nearest whole dollar amount.
- What is the present value of lease payments?
- Assuming Customer Ltd used straight-line method, what is the depreciation expense that the company should record for the financial year ended on 30 June 2020?
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