Small Ltd signed a 3-year contract with Big Ltd for the use of a factory on 1 July 2020 with the option to purchase the machinery at the end of the lease term. It is reasonably expected that Small Ltd will not exercise the bargain purchase option but returns the asset to the lessor. The leased machinery meets the criteria of a leased asset in accordance with AASB16 Leases. The following information shows the lease terms: Lease term (non-cancellable) Expected useful life of the machinery Expected residual value of the machinery Residual value guaranteed Expected fair value of the machinery at the end of lease term Bargain purchase price at the end of lease term Net initial directly attributable costs (paid at 1 July 2020) Initial lease payment (paid at 1 July 2020) Annual lease payment (paid in arrears at 30 June) Interest rate implicit in the lease O $36,857 O $98,284 O $36,857 3 years O $84,049 8 years nil $40 000 $50 000 $60 000 $10 000 What is the amount the depreciation expense that Small Ltd should recognize for the year ended 30 June 2021 (rounded to the nearest dollar) in accordance with the requirements of AASB 16 Leases? $50 000 $80 000 12% p.a.
Small Ltd signed a 3-year contract with Big Ltd for the use of a factory on 1 July 2020 with the option to purchase the machinery at the end of the lease term. It is reasonably expected that Small Ltd will not exercise the bargain purchase option but returns the asset to the lessor. The leased machinery meets the criteria of a leased asset in accordance with AASB16 Leases. The following information shows the lease terms: Lease term (non-cancellable) Expected useful life of the machinery Expected residual value of the machinery Residual value guaranteed Expected fair value of the machinery at the end of lease term Bargain purchase price at the end of lease term Net initial directly attributable costs (paid at 1 July 2020) Initial lease payment (paid at 1 July 2020) Annual lease payment (paid in arrears at 30 June) Interest rate implicit in the lease O $36,857 O $98,284 O $36,857 3 years O $84,049 8 years nil $40 000 $50 000 $60 000 $10 000 What is the amount the depreciation expense that Small Ltd should recognize for the year ended 30 June 2021 (rounded to the nearest dollar) in accordance with the requirements of AASB 16 Leases? $50 000 $80 000 12% p.a.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Small Ltd signed a 3-year contract with Big Ltd for the use of a factory on 1 July 2020 with the
option to purchase the machinery at the end of the lease term. It is reasonably expected that Small
Ltd will not exercise the bargain purchase option but returns the asset to the lessor. The leased
machinery meets the criteria of a leased asset in accordance with AASB16 Leases. The following
information shows the lease terms:
Lease term (non-cancellable)
Expected useful life of the machinery
Expected residual value of the machinery
Residual value guaranteed
Expected fair value of the machinery at the end of lease term
Bargain purchase price at the end of lease term
Net initial directly attributable costs (paid at 1 July 2020)
Initial lease payment (paid at 1 July 2020)
Annual lease payment (paid in arrears at 30 June)
Interest rate implicit in the lease
O $36,857
O $98,284
O $36,857
3 years
O $84,049
8 years
nil
$40 000
$50 000
$60 000
$10 000
What is the amount the depreciation expense that Small Ltd should recognize for the year ended 30
June 2021 (rounded to the nearest dollar) in accordance with the requirements of AASB 16 Leases?
$50 000
$80 000
12% p.a.
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