Question
In: Accounting
QUESTION 2 (IFRS 16) (12) Build Ltd enters into a contract with Bull Ltd for the...
QUESTION 2 (IFRS 16) (12)
Build Ltd enters into a contract with Bull Ltd for the lease of
heavy construction equipment. The duration of the lease is for one
year.
Bull Ltd undertakes to insure the equipment and to maintain it by
having it serviced every month. The contract stipulates that the
payments are $24 000 for the year, of which $4 000 relates to the
annual insurance and $7 200 relates to the provision of monthly
servicing, which would normally be $10 000 per year.
Scenario1.
The stand-alone price of the equipment is not available
Scenario 2.
The price to lease similar equipment for a year (without the
insurance and additional services) in $20 000.
Required:
(a) Describe briefly the identification of the components in this
lease contract in terms of IFRS16. (4)
(b) For each of Part 1 and Part 2, calculate the amount to allocate to the lease and non-lease components. (5)
(c) For part 1, provide the journal entries in the accounting records of Build Ltd. (3)
Solutions
Expert Solution
Build Ltd enters into a contract with Bull Ltd for the lease of heavy construction equipment. The duration of the lease is for one year.
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