Reference no: EM132594382
2103AFE Company Accounting - Griffith University
Question 1
Oceans Ltd manufactures specialised moulding machinery for both sale and lease. On 1 July 2020, Oceans Ltd leased a machine to Eleven Ltd. The machine being leased cost Oceans Ltd $195 000 to make and its fair value at 1 July 2020 is considered to be $212 515. The terms of the lease are as follows.
Required:
1.Classify the lease for Oceans Ltd. Justify your answer.
2. Prepare
(a) the lease receipts schedule for Oceans Ltd (show all workings) and
(b) the journal entries in its books for the year ended 30 June 2021.
Question 2
Gran Ltd has entered into an agreement to lease a D9 bulldozer to Torino Ltd. The lease agreement details are as follows.
Length of lease 5 years
Commencement date 1 July 2019
Annual lease payment, payable 30 June each year commencing 30 June 2020 $8,000
Fair value of the bulldozer at 1 July 2019 $34 797
Estimated economic life of the bulldozer 8 years
Estimated residual value of the bulldozer at the end of its economic life $2 000
Residual value at the end of the lease term,of which
50% is guaranteed by Torino Ltd $7 200
Interest rate implicit in the lease 5%
The lease is cancellable, but a penalty equal to 50% of the total lease payment is payable on cancellation. Torino Ltd does not intend to buy the bulldozer at the end of the lease term. Gran Ltd. Incurred $ 1,000 to negotiate and execute the lease agreement. Gran Ltd. purchased the bulldozer for $34,797 just before the inception of the lease.
Required
1. Prepare a schedule of lease payment for Torino Ltd.
2. Prepare journal entries to record the lease transactions for the year ended 30 June 2020 in the record of Torino Ltd.
3. State how Gran Ltd should classify the lease. Give reasons for your answer.
Q3. Additional questions that will be provided in the workshop.
Appendix
Table - PV of $1
This table shows how much $1 in n=number of years time will be worth now, at the discounted (implicit) interest rate given
Table - PV of $1 Annuity
This table shows how much $1 EVERY YEAR for n=number of years will be worth now, at the discounted (implicit) interest rate given
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