On 1 July 2019, XYZ Ltd leased a machinery from ABC Lid to be used to be used in the mining operations. The machinery cost XYZ Ltd S120 307, considered to be its fair value on that same day. The capital/ſinance lease agreement contained the following provisions: The lease term is for 3 years, commencing on Ist July 2019 The lease is cancellable and with a 10 % charge of the leased asset's fair value from the lessor Annual lease payment, payable on 30 June each year S40,000 Estimated useful life of machinery 4 years Estimated residual value of the machinery at the end of useful life S6,000 Bargain purchase option that La Ltd can exercise at the end of lease term S15,000 Interest rate implicit in the lease 7% REQUIRED: 1. Calculate the present value of lease payment. 2. Prepare the lease schedules for XYZ Ltd. 3. Prepare the journal entries in the records of XYZ Ltd only for the year ended 30 June 2020.

On 1 July 2019, XYZ Ltd leased a machinery from ABC Lid to be used to be used in the mining operations. The machinery cost XYZ Ltd S120 307, considered to be its fair value on that same day. The capital/ſinance lease agreement contained the following provisions: The lease term is for 3 years, commencing on Ist July 2019 The lease is cancellable and with a 10 % charge of the leased asset's fair value from the lessor Annual lease payment, payable on 30 June each year S40,000 Estimated useful life of machinery 4 years Estimated residual value of the machinery at the end of useful life S6,000 Bargain purchase option that La Ltd can exercise at the end of lease term S15,000 Interest rate implicit in the lease 7% REQUIRED: 1. Calculate the present value of lease payment. 2. Prepare the lease schedules for XYZ Ltd. 3. Prepare the journal entries in the records of XYZ Ltd only for the year ended 30 June 2020.

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

On 1 July 2019, XYZ Ltd leased a machinery from ABC Lid to be used to be used in the mining
operations. The machinery cost XYZ Ltd S120 307, considered to be its fair value on that same
day. The capital/finance lease agreement contained the fo!llowing provisions:
The lease term is for 3 years, commencing on
1st July 2019
The lease is cancellable and with a 10 % charge of the leased asset's fair value from the lessor
Annual lease payment, payable on 30 June each year
S40,000
Estimated useful life of machinery
4 years
Estimated residual value of the machinery at the end of useful life
S6,000
Bargain purchase option that La Ltd can exercise at the end of lease term
S15,000
Interest rate implicit in the lease
7%
REQUIRED:
1. Calculate the present value of lease payment.
2. Prepare the lease schedules for XYZ Ltd.
3. Prepare the journal entries in the records of XYZ Ltd only for the year ended 30 June
2020.

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