a) Determine the rate of interest implicit in the lease and calculate the present value ofthe lease payments.b) Prepare the journal entries in the books of Tea TreeLtd for the years ending 30 June2021 and 30 June 2022.c) Prepare the portion of the statement of financial position for the year ending 30 June2022 relating to the lease asset and lease liability. Your manager comes to you and states"What's this new lease standard IFRS 16 about, I hear it will make our performancemetrics much worse?" I also hear that the economic and financial markets effects of theCOVID-19 pandemic may impact a company's lease accounting in several ways.Your manager requests that you respond by email and you cover the following points.• A brief critique of the former lease standard IAS-17• The main issues and changes in the new lease standard IFRS16A response to your manager on the comment above i.e. the impacts on financial metrics(ratios) the new standard is likely to createÀn explanation of three key lease accounting impacts due to the economic and financialmarkets effects of the COVID-19 pandemic.Required:In a series of bullet points, respond to the manager on the issues raised. Tea Tree Ltd enters into a non-cancellable five-year lease agreement with Top Machines Ltd on 1July 2020. The lease is for an item of machinery that, at the inception of the lease, has a fair valueof $647,192.The machinery is expected to have an economic life of six years, after which time it will have anexpected residual value of $105,000. There is a bargain purchase option that Tea Tree Ltd will beable to exercise at the end of the fifth year for $140,000.There are to be five annual payments of $175,000, the first being made on 30 June 2021. Indudedwithin the $175,000 lease payments is an amount of $17,500 representing payment to the lessor forthe insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis.

Note: The question present in the second image alone has been answered as the requirements pertain…

Answered: Tea Tree Ltd enters into a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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a) Determine the rate of interest implicit in the lease and calculate the present value ofthe lease payments.

b) Prepare the journal entries in the books of Tea TreeLtd for the years ending 30 June2021 and 30 June 2022.

c) Prepare the portion of the statement of financial position for the year ending 30 June2022 relating to the lease asset and lease liability.

Your manager comes to you and states
"What's this new lease standard IFRS 16 about, I hear it will make our performance
metrics much worse?" I also hear that the economic and financial markets effects of the
COVID-19 pandemic may impact a company's lease accounting in several ways.
Your manager requests that you respond by email and you cover the following points.
• A brief critique of the former lease standard IAS-17
• The main issues and changes in the new lease standard IFRS16
A response to your manager on the comment above i.e. the impacts on financial metrics
(ratios) the new standard is likely to create
Àn explanation of three key lease accounting impacts due to the economic and financial
markets effects of the COVID-19 pandemic.
Required:
In a series of bullet points, respond to the manager on the issues raised.

Tea Tree Ltd enters into a non-cancellable five-year lease agreement with Top Machines Ltd on 1
July 2020. The lease is for an item of machinery that, at the inception of the lease, has a fair value
of $647,192.
The machinery is expected to have an economic life of six years, after which time it will have an
expected residual value of $105,000. There is a bargain purchase option that Tea Tree Ltd will be
able to exercise at the end of the fifth year for $140,000.
There are to be five annual payments of $175,000, the first being made on 30 June 2021. Induded
within the $175,000 lease payments is an amount of $17,500 representing payment to the lessor for
the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-
line basis.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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