Question

On 1 July 2019, Maria Ltd enters a 5 years lease agreement with John Ltd to obtain the right to use ten photocopiers. The photocopiers have a useful life of 6 years. Lease payments of $50,000 are to be made at the end of each financial year for 5 years starting on 30 June 2020. To enter the lease, it costs Maria Ltd $5,000 to seek for professional advice. The residual value guaranteed by the lessee is $10,000 and the implicit interest rate in the lease contract is 9% p.a.

Additional information:

Interest Rate	Present Value of $1 in 5 years	Present Value of an annuity of $1 for 5 years
9%	0.6499	3.8897

REQUIRED

1. Calculate the lease liability and the right-to-use machine cost to be recognised by Maria Ltd as at 1 July 2019, in accordance with AASB 16 Leases.

2. Complete the lease payment schedule for 30 June 2020; 30 June 2021 and 30 June 2022.

3. Provide the journal entries for Maria Ltd to record the commencement of the lease agreement on 1 July 2019.

4. Provide the journal entries for Maria Ltd to record the first interest payment on 30 June 2020.

Answer 1

1.

Calcultion of Present value of lease payments by lessee

Year	Type	Amount	PVF/AF 9%	Discounted Cash Flow
1-5	Annual Lease Payments	$           50,000.00	3.8897	$                  1,94,485.00
5	Guarenteed Residual Value	$           10,000.00	0.6499	$                       6,499.00
		Present Value of lease		$                  2,00,984.00

Machine cost to be recognised by Maria Ltd as at July 1, 2019 is $200,984

2.

Lease Payment Schedule for 5 years

Year	Opening Balance	Montly Payments	Principal	Interest	Closing Balance
1	$                         2,00,984.00	$           50,000.00	$31,911.44	$                     18,088.56	$   1,69,072.56
2	$                         1,69,072.56	$           50,000.00	$34,783.47	$                     15,216.53	$   1,34,289.09
3	$                         1,34,289.09	$           50,000.00	$37,913.98	$                     12,086.02	$       96,375.11
4	$                            96,375.11	$           50,000.00	$41,326.24	$                       8,673.76	$       55,048.87
5	$                            55,048.87	$           60,000.00	$55,048.87	$                       4,951.13	$               -0.00

3.

Journal Entries on Maria Ltd on commencement of lease agreemnet on 1st July

Asset $200,894

To Lessor(John Ltd) $200,894

Lease/legal Expense $5,000

To cash/bank $5,000

4.

Journal Entries of maria ltd on 30th June 2020

John Ltd $31,911

Finance cost $18,089

To Bank/cash $50,000

Profit and loss $18,089

To Finance Cost $18,089