Question

Entity Ltd, a lessor, is unsure of the requirements of NZ IFRS 16 Leases and wishes to see the effect of applying NZ IFRS 16 Leases on their financial statements for the current financial year and the following three financial years.

Entity Ltd has provided you with some details about their two PPE lease contracts.

	Lease 1	Lease 2
Lease classified as a	Finance lease	Operating lease
Commencement date	1 April 2019	1 April 2019
Inception date	20 March 2019	-
Lease term	Four years	Three years
Fixed payments per annum at year end	$189 000	$30 000
An extra payment at the beginning of the lease term	-	$6 000
Residual value guarantee (RVG) as per lease contract	$180 000	-
Lessee expects FV portion of the asset at the end of the lease to be	$160 000	-
UGRV at the end of lease	$300 000	-
IDC incurred by the lessor	$ 0	-
FV of the underlying asset	$1 006 373	$280 000
The interest rate implicit in the lease	7%	-
Economic life of the asset	Eight years	Eight years
The depreciation method used by the lessor	Straight line	Straight line
The relevant present value discount factors are:
Present value of $1 in n periods	0.7629           i = 7%	-
Present value of an annuity	3.3872          n = 4 periods	-
Interest income SCF classification	CFIA	-

Required:

Prepare the financial statements for Entity Ltd for the current financial year and the following three financial years in relation to the two leases above.

Answer 1