Accounting XYZ Inc. gave on lease a crane to Alexander Contractors under a 4-year non- cancellable agreement which started from 1 January 2022. Annual payment for the same was $ 35,000 first payment from 1 January 2022. XYZ took responsibility of bearing insurance, maintenance and taxes on this crane. Estimated life of asset is 10 years and cost of $ 250,000. Expected fair value of asset at the end of lease term of 4 years is $ 55,000. There was no purchase or bargain or renewal option in the agreement. Both the companies closed their books of accounts every year at 31st December.What will be the treatment of these entries in the Income Statement and Financial Statements of both the parties at the end of 2022 in the light of IFRS 16

Accounting XYZ Inc. gave on lease a crane to Alexander Contractors under a 4-year non- cancellable agreement which started from 1 January 2022. Annual payment for the same was $ 35,000 first payment from 1 January 2022. XYZ took responsibility of bearing insurance, maintenance and taxes on this crane. Estimated life of asset is 10 years and cost of $ 250,000. Expected fair value of asset at the end of lease term of 4 years is $ 55,000. There was no purchase or bargain or renewal option in the agreement. Both the companies closed their books of accounts every year at 31st December.What will be the treatment of these entries in the Income Statement and Financial Statements of both the parties at the end of 2022 in the light of IFRS 16

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Accounting
XYZ Inc. gave on lease a crane to Alexander Contractors under a 4-year non-
cancellable agreement which started from 1 January 2022. Annual payment for
the same was $ 35,000 first payment from 1 January 2022. XYZ took
responsibility of bearing insurance, maintenance and taxes on this crane.
Estimated life of asset is 10 years and cost of $ 250,000. Expected fair value of
asset at the end of lease term of 4 years is $ 55,000. There was no purchase or
bargain or renewal option in the agreement. Both the companies closed their
books of accounts every year at 31st December.What will be the treatment of
these entries in the Income Statement and Financial Statements of both the
parties at the end of 2022 in the light of IFRS 16

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