lease
Ma3.
Question 5
An undertaking (lessor) leases a truck to a customer for 3 years. The value of the truck at the end of the lease is estimated at 40% of its original cost. Market data suggests that the likely range of residual values after 3 years is 40% to 50% of original cost. The lessee will guarantee any fall in the truck's residual value below 40% down to 25% of original cost. The lessor will bear the cost of any fall in residual value below 25% of original cost.
A. Based on the above information, indicate whether the lease is an operating or finance lease. Provide appropriate reasons for your choice.
B. Explain the treatment for operating lease payments according to IAS 17.
C.GLtd a small company, leases a car from
for three years at $10, 000 per month. The first four (4) months rental is payable on day one (1) and no rental is paid in months 34-36.
i. Show the double entry treatment in the books of the lessee for rental in month 1.
ii. Show the double entry treatment in the books of the lessee for rental in month 34.
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