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WEEK 8 TUTORIAL QUESTIONS LEASES (Lecture 7) Due Date: Week 8 (Tuesday, 11 Septe

ID: 2329437 • Letter: W

Question

WEEK 8 TUTORIAL QUESTIONS LEASES (Lecture 7) Due Date: Week 8 (Tuesday, 11 September 2018) PRACTICAL QUESTION 20 marks) On 1 July 2021 Eaitval Ltd (the lessee) contracts a lease equipment for five years at an annual rental of $20,000, with the first payment payable immediately and subsequent annual payments due on 30 June. The equipment could have been purchased from the supplier for $80,747 on 1 July 2021 if leasing was not chosen instead. The rate of interest implicit in the lease is 12% and the end of the reporting period is 30 June. Assume the equipment is returned to the lessor at the end of the lease, when the residual value of the equipment is nil. 1) Provide general journal entries to record the lease on 1 July 2021 for(5 marks) Eaicval Ltd. 2) Provide a schedule showing the division of the lease rental into interest and principal components for the lessee over the term of the lease. (5 marks) 3) Provide the depreciation schedule for the lessee assuming the right-of (2 marks) use asset is depreciated over the term of the lease (straight-line method) 4) Prepare the general journal entries for the lessee for the remaining term of the lease (not covered by part (1) of this question) up until 30 June 2023. (6 marks) 5) Based on the case, explain the motivation for the standard setter to(2 marks) release the new lease standard (AASB 16)

Explanation / Answer

Working Note

Depreciation      =             Cost of Assets-Residual Value/Assets Life

                                =             80,747-0.00/5Year

                                =             $ 16,149.40

A             Journal Entries as on 1st July 2021

1              Equipment taken on lease

By Equipment A/c            Dr           $80,747.00         

To Lease A/c                      Cr                            $80,747.00         

2              Rental Paid for Lease Equipment

By Lease Rent A/c            Dr           $20,000.00         

To Bank and Cash A/c     Cr                            $20,000.00

B             Schedule for Lease rental

Year

B/F

Interest@12%

Lease rent

C/F

1

$ 80,747.00

$         9,689.64

$ (20,000.00)

$ 70,436.64

2

$ 70,436.64

$         8,452.40

$ (20,000.00)

$ 58,889.04

3

$ 58,889.04

$         7,066.68

$ (20,000.00)

$ 45,955.72

4

$ 45,955.72

$         5,514.69

$ (20,000.00)

$ 31,470.41

5

$ 31,470.41

$         3,776.45

$ (20,000.00)

$ 15,246.86

C             Depreciation Schedule

Year

B/F

Depreciation(Refer Working Note1)

C/F

1

$ 80,747.00

$       16,149.40

$   64,597.60

2

$ 64,597.60

$       16,149.40

$   48,448.20

3

$ 48,448.20

$       16,149.40

$   32,298.80

4

$ 32,298.80

$       16,149.40

$   16,149.40

5

$ 16,149.40

$       16,149.40

$                   -  

D             Journal Entries till 2023 end

Year-2021            Equipment taken on lease

By Equipment A/c            Dr           $80,747.00         

To Lease A/c                      Cr                            $80,747.00         

Rental Paid for Lease Equipment

By Lease Rent A/c            Dr           $20,000.00         

To Bank and Cash A/c     Cr                            $20,000.00         

Depreciation end of the Year

By Depreciation expense             Dr           $16,149.40         

To Accumulated depreciation     Cr                            $16,149.40

Year-2022            Rental Paid for Lease Equipment            

By Lease Rent A/c            Dr           $20,000.00         

To Bank and Cash A/c     Cr                            $20,000.00

Depreciation end of the Year

By Depreciation expense             Dr           $16,149.40         

To Accumulated depreciation     Cr                            $16,149.40

Year-2023            Rental Paid for Lease Equipment            

By Lease Rent A/c            Dr           $20,000.00         

To Bank and Cash A/c     Cr                            $20,000.00

Depreciation end of the Year

By Depreciation expense             Dr           $16,149.40         

To Accumulated depreciation     Cr                            $16,149.40

Year

B/F

Interest@12%

Lease rent

C/F

1

$ 80,747.00

$         9,689.64

$ (20,000.00)

$ 70,436.64

2

$ 70,436.64

$         8,452.40

$ (20,000.00)

$ 58,889.04

3

$ 58,889.04

$         7,066.68

$ (20,000.00)

$ 45,955.72

4

$ 45,955.72

$         5,514.69

$ (20,000.00)

$ 31,470.41

5

$ 31,470.41

$         3,776.45

$ (20,000.00)

$ 15,246.86