Brussels leaves two similar assets in two different manufacturing plants. The le

Question

Brussels leaves two similar assets in two different manufacturing plants. The leases were seperately neotiated. The assets each have an economic life of ten years and a seven year lease. Brussels' incremental borrowing rate is 6%. The leases neither transfer ownership nor have bargaining purchase options. Additional details for each leased asset follow:

Asset A: has a fair market value of $225,000 and payments under the lease are $33,750 each year. the first payement is due at the inception of the lease.

Asset B: has a fair market value of $225,000 and payments under the lease are $34,312.50 each year. The first payment is due at the inception of the lease.

Write the necessary journal entries and adjusting entries (if needed) for GAAP and IFRS accounting standards

Explanation / Answer

Hey Dear Student !!

It is a case of Operating Leases under which risk and rewards remains with Lessor. In this case both Lessee and Lessor book their Expense and Income in Profit & Loss Account. Following Entries will be passed by Burrsel Every Year:

For Rent at beginning of each year:

Cash/Bank A/c...Dr. 33750
To Lease Rent A/c. 33750
(Being Rent Received)

Cash/Bank A/c...Dr. 34312.50
To Lease Rent A/c. 34312.50
(Being Rent Received)

For Depreciation at every year end:

Depreciation Expense A/c..Dr. 22500
To Accumulated Dep. A/c. 22500
(Being Depreciation recorded)

Depreciation Expense A/c..Dr. 32143
To Accumulated Dep. A/c. 32143
(Being Depreciation recorded)

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