Please solve this question with your best knowledge and experience . Please don,t reject it. Thanks in advance Burt Ltd enters into a non-cancellable 5 -years lease agreement with Earnie Ltd on 1 July 2023. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $ 1,498,678 . The machinery is expected to have an economic life of 9 years, after which time it will have an expected residual value of $ 260,000 . There is a bargain purchase option that Burt Ltd will be able to exercise at the end of the 5 th year for $ 250,000 . There are to be 5 annual payments of $ 450,000 , the first being made on 30 June 2024. Included within the $ 450,000 lease payments is an amount of $ 40,000 representing payment to the lessor for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. Required: a) Determine the rate of interest implicit in the lease and calculate the present value of the lease payments. In this question the implicit rate is (percent): Proof (Enter the proof in the table below) Description Calculation Total Periodic lease payments Bargain purchase option Fair value at lease inception b) Prepare the journal entries in the books of Burt Ltd at the start of the agreement and for the years ending 30 June 2024 and 30 June 2025. 1st July 2023 Debit/Credit Description Debit Amount Credit Amount Debit Credit Right-of-use Asset – Machinery Lease Liability Debit Credit Right-of-use Asset – Machinery Lease Liability 30th June 2024 Debit/Credit Description Debit Amount Credit Amount Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation 30th June 2025 Debit/Credit Description Debit Amount Credit Amount Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation Debit Credit Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation c) Prepare the portion of the statement of financial position for the year ending 30 June 2024 and 2025 relating to the lease asset and lease liability. Assets Description 30th June 2024 30th June 2025 Non-current Assets Right-of-use Asset - Machinery Less Accumulated Depreciation Right-of-use Asset - Machinery Less Accumulated Depreciation Liabilities Description 30th June 2024 30th June 2025 Current Liabilities Lease Liability Non-current Liabilities Lease Liability
Please solve this question with your best knowledge and experience . Please don,t reject it. Thanks in advance
Burt Ltd enters into a non-cancellable 5 -years lease agreement with Earnie Ltd on 1 July 2023. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $ 1,498,678 .
The machinery is expected to have an economic life of 9 years, after which time it will have an expected residual value of $ 260,000 . There is a bargain purchase option that Burt Ltd will be able to exercise at the end of the 5 th year for $ 250,000 .
There are to be 5 annual payments of $ 450,000 , the first being made on 30 June 2024. Included within the $ 450,000 lease payments is an amount of $ 40,000 representing payment to the lessor for the insurance and maintenance of the equipment. The equipment is to be
Required:
- a) Determine the rate of interest implicit in the lease and calculate the present value of the lease payments.
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In this question the implicit rate is (percent): |
Proof (Enter the proof in the table below)
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Description |
Calculation |
Total |
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Periodic lease payments |
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Bargain purchase option |
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Fair value at lease inception |
- b) Prepare the
journal entries in the books of Burt Ltd at the start of the agreement and for the years ending 30 June 2024 and 30 June 2025.
1st July 2023
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Debit/Credit |
Description |
Debit Amount |
Credit Amount |
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Debit Credit |
Right-of-use Asset – Machinery Lease Liability |
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Debit Credit |
Right-of-use Asset – Machinery Lease Liability |
30th June 2024
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Debit/Credit |
Description |
Debit Amount |
Credit Amount |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
30th June 2025
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Debit/Credit |
Description |
Debit Amount |
Credit Amount |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
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Debit Credit |
Interest Expense Lease Liability Service Expenses Cash Depreciation Expense Accumulated Depreciation |
- c) Prepare the portion of the
statement of financial position for the year ending 30 June 2024 and 2025 relating to the lease asset and lease liability.
Assets
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Description |
30th June 2024 |
30th June 2025 |
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Non-current Assets |
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Right-of-use Asset - Machinery Less Accumulated Depreciation |
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Right-of-use Asset - Machinery Less Accumulated Depreciation |
Liabilities
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Description |
30th June 2024 |
30th June 2025 |
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Current Liabilities |
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Lease Liability |
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Non-current Liabilities |
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Lease Liability |
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