This proble P 11-24 Lessee accounting: lease versus non-lease components O LO11-10 This problem is based on the situation described in BE 11-1 and BE 11-2. On January 1, 2021, Harvey Servicing Ltd. enters into a contract with Gourmet Coffee where the latter will provide Harvey with two similar coffee machines in its customer reception area for the next three years at a fixed fee of $650 payable at the start of each month. The contract also stipu- lates that Gourmet will carry out regular servicing on the machines and Gourmet cannot replace the two coffee machines in Harvey's customer reception area without the explicit approval of Harvey. While Harvey can use any brand of coffee beans with the two machines, it has negotiated with Gourmet to supply 30 kgs of Gourmet supreme beans at the start of each month during the con- tractual period. The fixed monthly fee payable to Gourmet includes the 30 kgs of coffee beans. If Harvey requires additional coffee beans to be supplied by Gourmet, separate charges apply. The coffee machine has a useful life of five years with zero residual value. It is established that Gourmet charges $200 per month for the lease of a machine on its own for three years. Gourmet also sep- arately provides monthly coffee machine servicing at $50 per machine and sells each 1-kg bag of supreme coffee beans at $8. Harvey's incremental borrowing rate is 12% per annum. Required: How should Harvey Servicing Ltd. account for its contract with Gourmet Coffee under IFRS 16? Provide the relevant journal entries for January and February 2021 assuming that Harvey prepares monthly financial reports. This proble P 11-24 Lessee accounting: lease versus non-lease components O LO11-10 This problem is based on the situation described in BE 11-1 and BE 11-2. On January 1, 2021, Harvey Servicing Ltd. enters into a contract with Gourmet Coffee where the latter will provide Harvey with two similar coffee machines in its customer reception area for the next three years at a fixed fee of $650 payable at the start of each month. The contract also stipu- lates that Gourmet will carry out regular servicing on the machines and Gourmet cannot replace the two coffee machines in Harvey's customer reception area without the explicit approval of Harvey. While Harvey can use any brand of coffee beans with the two machines, it has negotiated with Gourmet to supply 30 kgs of Gourmet supreme beans at the start of each month during the con- tractual period. The fixed monthly fee payable to Gourmet includes the 30 kgs of coffee beans. If Harvey requires additional coffee beans to be supplied by Gourmet, separate charges apply. The coffee machine has a useful life of five years with zero residual value. It is established that Gourmet charges $200 per month for the lease of a machine on its own for three years. Gourmet also sep- arately provides monthly coffee machine servicing at $50 per machine and sells each 1-kg bag of supreme coffee beans at $8. Harvey's incremental borrowing rate is 12% per annum. Required: How should Harvey Servicing Ltd. account for its contract with Gourmet Coffee under IFRS 16? Provide the relevant journal entries for January and February 2021 assuming that Harvey prepares monthly financial reports
