Question

Lessor leasing company agrees to lease equipment to Lessee corp. on Jan 1, 2019, both Lessor and Lessee follows IFRS. The following information relates to the lease agreement:

1. the lease term is 7 years, no renewal,
2. Lessor acquired the equipment this day Jan 1, 2019 for $560,000 cash, the useful life 10 years
3. at the end of the term the equipment to be returned to the lessor with guaranteed residual value of $40,000
4. the lease agreement require annual rental payments beginning of Jan 1 each yaer
5. Lessor charges 10% on all it is transactions and it is the same rate that Lessee can borrow from there Bank.

Instructions:

Considering this as Financing type (Capital) Lease, answer the following questions:

1. Calculate the amount of the annual rental (lease) payment
2. If Dec 31 is the fiscal year end for Lessee co., prepare the journal entries that Lessee would make in 2019 and 2020, Lessee did not use reversing entries
3. From the information you have calculated and recorded, identify all balances related to the lease that would be reported on Lessee Balance sheet on Dec 31,2020

Answer 1

1	cost of equipment	$   5,60,000.00		1	0.909090909		106810.9	97100.78
				2	0.826446281		106810.9	88273.44
	salvlage value	$      40,000.00		3	0.751314801		106810.9	80248.58
				4	0.683013455		106810.9	72953.25
	dep value	$   5,20,000.00	$      74,285.71	5	0.620921323		106810.9	66321.14
				6	0.56447393		106810.9	60291.95
	no of years	$               10.00		7	0.513158118		106810.9	54810.86
					4.868418818	$5,20,000.00	747676	520000
	lease perios	$                 7.00
	annul lease payment	$   1,06,810.86						1
2	2019.00
	lease asset dr	$   5,20,000.00
	lease laibity		$ 5,20,000.00
	Interest	$         9,710.08
	To Lease lilabiity		$        9,710.08
	lease laibity	$   1,06,810.86
	to Lease rental		$ 1,06,810.86
	Dep	$      74,285.71
	To lease asset		$      74,285.71
	2020.00
	Interest	$      18,537.42
	Deferred Interest		$      18,537.42
	Dep	$      74,285.71
	To lease asset		$      74,285.71
	lease laibity	$   1,06,810.86
	to Lease rental		$ 1,06,810.86
	Balance sheet 2020
		DR	CR
	lease asset	$   3,71,428.57
	lease liabiiy		$ 3,34,625.78
	for any clarification feel free to comment on it PAYMENT ENTRY HAS NOT BEEN DONE IF YOU WANT WE CAN MAKE PAYMENT ENTRY ALSO