As a supplier of heavy-duty machineries, Pine Ltd leased a machine to Bulla Ltd on an 8-year non-cancellable lease. The following information is available: Lease term 8 yearsi) Residual value at the end of the term $10 000Ii) Bargain purchase option at the end of the term $20 000iii) Minimum lease payments (at the end of each year) $120 000iv) Service costs included in minimum lease payments $20 000Rate implicit in the contract 12%Cumulative present value factor at 12% for 8 years 4.9676Present value factor at 12% for 8th year 0.4039 Required: Which of the items from i) – iv) above will not be included in determining the leased asset and leased liability at the inception of the lease, and explain why not?ANSWER a): What is the amount to be recorded as an asset and a liability in the books of the lessee that is in accordance with AASB 16 Leases?

Explanation of Concept A lease is defined as the contract between two parties for use of an asset.…

Answered: ellable lease. The following…

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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As a supplier of heavy-duty machineries, Pine Ltd leased a machine to Bulla Ltd on an 8-year non-cancellable lease. The following information is available:

Lease term		8 years
i) Residual value at the end of the term		$10 000
Ii) Bargain purchase option at the end of the term		$20 000
iii) Minimum lease payments (at the end of each year)		$120 000
iv) Service costs included in minimum lease payments		$20 000
Rate implicit in the contract		12%
Cumulative present value factor at 12% for 8 years		4.9676
Present value factor at 12% for 8^th year		0.4039

Required:

Which of the items from i) – iv) above will not be included in determining the leased asset and leased liability at the inception of the lease, and explain why not?

ANSWER a):

What is the amount to be recorded as an asset and a liability in the books of the lessee that is in accordance with AASB 16 Leases?

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