QUESTION 3 - (13 MARKS) On 1 July 2023, Flyer Ltd decides to lease an aeroplane...

QUESTION 3 -

On 1 July 2023, Flyer Ltd decides to lease an aeroplane from Finance Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 10 per cent. It is expected that the aeroplane will be scrapped at the end of the lease term. The fair value of the aeroplane at the commencement of the lease is $2 428 400. The lease is non-cancellable and requires Flyer to return the aeroplane to Finance Ltd at the end of the lease, and also it requires a lease payment of $300 000 on inception of the lease (on 1 July 2023) and lease payments of $250 000 on 30 June each year (starting 30 June 2024). There is no residual payment required.

REQUIRED

Provide the journal entries for the lease in the books of Flyer Ltd as at 1 July 2023.

Provide the journal entries for the lease in the books of Finance Ltd as at 1 July 2023.

Provide the journal entries in the books of Flyer Ltd for the final year of the lease (that is, the entries in 20 years’ time). (3.5 marks)

Type answer here

Provide the journal entries in the books of Finance Ltd for the final year of the lease (that is, the entries in 20 years’ time). (1.5 marks)

Type answer here

Expert Solution

ANswer:

A. Journal Entry for Flyer Ltd.
Date	Particulars	Debit	Credit
01-07-2023	Rent Account Dr.	3,00,000
	To Cash / Bank Account Cr.		3,00,000
	(To Record of Rent Payament)

B. Journal Entry for Finance Ltd.
Date	Particulars	Debit	Credit
01-07-2023	Cash / Bank Account Dr.	3,00,000
	To Rental Income Account Cr.		3,00,000
	(To Record of Rental Income)

C. Journal Entry for Flyer Ltd. (Last Lease Payment)
Date	Particulars	Debit	Credit
xxxx	Rent (Expense) Account Dr.	2,50,000
	To Cash Account Cr.		2,50,000
	(To Record of Rent (Expense) Payment)

D. Journal Entry for Finance Ltd. (At the of Lease)
Date	Particulars	Debit	Credit
xxxx	Cash / Bank Account Dr.	2,50,000
	To Rental Income Account Cr.		2,50,000
	(To Record of Rental Income)

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