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Ivance of €2,100 residual value at the end of fiv 6.62% per annum December

Ivance of €2,100 residual value at the end of fiv 6.62% per annum December

FINANCIAL ACCOUNTING
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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Jack plc entered into a non-cancellable lease agreement for an item of machine on the following terms: Fair value of the machine: €10,000 Lease term: 5 years Five annual rentals payable in advance of €2,100 Lessor's unguaranteed estimated residual value at the end of five years: €1,000 Implicit interest rate in the lease: 6.62% per annum Commencement date: 1 Jan 2018 Lessee's financial year-end: 31 December Note: the present value of an ordinary annuity of €l per year for 4 years at 6.62% interest is €3.42. REQUIRED: (a) Determine whether this lease represents a finance lease or an operating lease in accordance with IFRS 16 (show all your workings); (b) Prepare the income statement and balance sheet extracts for the years ended 31 December 2018 to 2022.
Transcribed Image Text:Jack plc entered into a non-cancellable lease agreement for an item of machine on the following terms: Fair value of the machine: €10,000 Lease term: 5 years Five annual rentals payable in advance of €2,100 Lessor's unguaranteed estimated residual value at the end of five years: €1,000 Implicit interest rate in the lease: 6.62% per annum Commencement date: 1 Jan 2018 Lessee's financial year-end: 31 December Note: the present value of an ordinary annuity of €l per year for 4 years at 6.62% interest is €3.42. REQUIRED: (a) Determine whether this lease represents a finance lease or an operating lease in accordance with IFRS 16 (show all your workings); (b) Prepare the income statement and balance sheet extracts for the years ended 31 December 2018 to 2022.
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