Volume 46 Limited (a publicly traded company) is looking to invest in vehicles to deliver meals to schools as a part of their community outreach program to help with vulnerable populations. On January 1, 2020, after getting quotes in the market they opted to use LeaseCe (a publicly traded company) and entered into an agreement to lease a standard model delivery van for the next 3 years. Volume 46 will guarantee that when the van is returned on January 1, 2023 that it will have a residual value of $2.800 and would provide another 2 years of life to the next owner. The lease was set to provide an agreed upon return for LeaseCo of 6% (the assumed incremental borrowing rate). Given that this lease was for a charitable cause. LeaseCo set the lease payments based on the carrying value of the van at $18,000. Annual executory costs were set at $100 per month to cover basic maintenance and storage provided by Lease Co. Additional Information: - Both companies use straight line depreciation for assets - Executory costs are guaranteed even if Lease Co sees an increase in materials and labgur. Collection is reasonably assumed through the life of the lease and the first lease payment is due January 1, 2020. There will be 3 payments in total made via e-transfer. Lease Co is not responsible for any costs beyond maintenance and storage Both companies have a December 31st Year End 1. Prepare Journal Entries on the following dates for both parties: - January 1, 2020 December 31, 2020 January 1, 2021 2. Discuss the return on January 1, 2023 (when the vehicle is returned) using hypothetical numbers to prepare journal entries. 3. Discuss the nature of leasing and how IFRS and ASPE would differ on this treatment of the lease. Volume 46 Limited (a publicly traded company) is looking to invest in vehicles to deliver meals to schools as a part of their community outreach program to help with vulnerable populations. On January 1, 2020, after getting quotes in the market they opted to use LeaseCe (a publicly traded company) and entered into an agreement to lease a standard model delivery van for the next 3 years. Volume 46 will guarantee that when the van is returned on January 1, 2023 that it will have a residual value of $2.800 and would provide another 2 years of life to the next owner. The lease was set to provide an agreed upon return for LeaseCo of 6% (the assumed incremental borrowing rate). Given that this lease was for a charitable cause. LeaseCo set the lease payments based on the carrying value of the van at $18,000. Annual executory costs were set at $100 per month to cover basic maintenance and storage provided by Lease Co. Additional Information: - Both companies use straight line depreciation for assets - Executory costs are guaranteed even if Lease Co sees an increase in materials and labgur. Collection is reasonably assumed through the life of the lease and the first lease payment is due January 1, 2020. There will be 3 payments in total made via e-transfer. Lease Co is not responsible for any costs beyond maintenance and storage Both companies have a December 31st Year End 1. Prepare Journal Entries on the following dates for both parties: - January 1, 2020 December 31, 2020 January 1, 2021 2. Discuss the return on January 1, 2023 (when the vehicle is returned) using hypothetical numbers to prepare journal entries. 3. Discuss the nature of leasing and how IFRS and ASPE would differ on this treatment of the lease
