Question 6 Henman plc entered into a finance lease for a machine on 1st May 2019....

Question 6

Henman plc entered into a finance lease for a machine on 1st May 2019. The lease details are as follows:

Length of lease	5 years
Annual payments	£3,500 payable in arrears
Fair value	£16,200
Deposit paid 1st May 2019	£1,457
Interest rate implicit in the lease	6%
Useful life of the asset	6 years

Requirements

Prepare the relevant Statement of profit or loss extract in respect of the above lease for the year ended 30th April 2020.

Prepare the Statement of financial position extract as at 30th April 2020 with respect to the lease liability. You may round to the nearest whole number. Show your workings.

For a contract to meet the definition of a finance lease in IFRS 16 Leases it must satisfy TWO conditions. State the two conditions.

Briefly explain how a contract is treated under IFRS 16 if the supplier has the right to substitute a correctly operating asset. (1 mark)

Expert Solution

Hit Like if this helped you, leave a comment in case of any further queries.

ekkarill92 answered 2 years ago

On the 1st of May 2019 Tiger Plc split its stock for 2 for 1. The...

On the 1st of May 2019 Tiger Plc split its stock for 2 for 1. The cash dividend is at £0.33 a quarter. The closing share price is £39.23. i) What is the price of the share before the split? ii) Could the adjustment in the price per share and cash dividends have been accomplished by a share dividend? What would the size of the share dividend need to be to accomplish this goal? iii) What is the annual dividend...

On 1 April 2019 Orange Limited entered into an agreement to lease a machine that had...

On 1 April 2019 Orange Limited entered into an agreement to lease a machine that had an estimated life of four years. The lease period is also four years, at which point the asset will be returned to the leasing company. Annual rentals of $50,000 are payable in arrears from 31 March 2020. The machine is expected to have a nil residual value at the end of its life. The machine had a fair value of $142,750 at the inception...

On 1 July 2019, BrixtonLtd entered into a five-year lease agreement with Reliable Finance Ltd for...

On 1 July 2019, BrixtonLtd entered into a five-year lease agreement with Reliable Finance Ltd for an item of machinery. Brixton Ltd incurred initial direct costs of $658 to negotiate and arrange the lease. The lease agreement requires BrixtonLtd to make five annual lease payments of $20,000 per year paid at the beginning of each year (in advance: annuity due) on 1 July with the first payment on 1 July 2019. At the end of the lease term, BrixtonLtd will...

Question A. Alex purchased a CNC machine on 1st October 2019 at a cost of $110,000...

Question A. Alex purchased a CNC machine on 1st October 2019 at a cost of $110,000 (including GST). This machinery is estimated to have a useful life of seven years. B. Alex purchased a Holden car on 1 May, 2019 at a cost of $63,000, estimated to have a useful life of five years. Required: With reference to relevant legislation and case law, discuss and calculate what amount is allowed as a deduction for the decline in value of the...

Q4 a) On January 1st 2019 one share of BBK plc is priced at $35 and...

Q4 a) On January 1st 2019 one share of BBK plc is priced at $35 and is expected to pay a dividend of $1.25 in 6 months and a further dividend of $1.00 in 1 year. The relevant risk-free rate of interest is 3% per annum with continuous compounding. What should be the price of a forward contract, written on a BBK share, which matures immediately after the second dividend is paid and what is the initial value of the...

Answer this question for a lease accounted for as a finance lease by lessee, and STL...

Answer this question for a lease accounted for as a finance lease by lessee, and STL (sales type lease) by lessor. a) At a signing, only the lessee records a JE involving the asset under lease b) Both parties record two JEs each year of the lease term, not counting the JE at signing c) Both parties record only one JE each year of the lease term, not counting the JE at signing d) Bot parties amortize (depreciate) the asset...

Renault entered into 2 lease contracts. The first one was a 6-year lease for equipment with...

Renault entered into 2 lease contracts. The first one was a 6-year lease for equipment with a €2,000 monthly lease payment at the beginning of each month. Renault took passion of the equipment on 1/1/2017. The market rate was 9.5%. The second lease contract was a 5 year lease, beginning on 1/1/2017 for retail shops with a semi-annual payments of €36,000 due at the end of the period. Assume the market rate of interest on such transactions is 6.5%. Assume...

Morisot plc supplies mobile phones and network services to retail customers. On 1st July 2019 it...

Morisot plc supplies mobile phones and network services to retail customers. On 1st July 2019 it launched its latest model of handset, the Artwork 5. As a promotional offer, customers can sign a three-year contract which provides a free handset at the beginning of the period. The customer then pays £25 per month for unlimited calls, texts and data. The handsets can be purchased separately for £648 and the monthly plan without the handset is available for £18 per month....

Ajax entered into a four-year finance lease that specifies eight equal minimum semi-annual lease payments. Each...

Ajax entered into a four-year finance lease that specifies eight equal minimum semi-annual lease payments. Each payment is composed of two things: interest expense and a reduction in the net lease liability. The portion of the fourth lease payment applicable to the reduction of the net lease liability should be Question 10 options: more than in the fifth payment. the same as in the third payment. less than in the fifth payment. less than in the third payment.

Uptown Inc. entered into an arrangement on January 1, 2017 to lease a machine for four...

Uptown Inc. entered into an arrangement on January 1, 2017 to lease a machine for four years with lease payments of $85,000 each year with the first payment due immediately and January 1 of each year thereafter. There are no options to extend, terminate, or renew the lease. The lessor requires a return on its leases of this type of 8%, which is the same as Uptown Inc.’s marginal borrowing rate. a) Assuming that this lease meets the criteria for...

Question