Reference no: EM132702045

Question -

(A) Modern Ltd has decided to lease a plant from a supplier and has agreed the following terms with the supplier:

Date of inception of lease: 1 July 2019

Duration of lease: 10 years

Life of leased asset: 10 years

Unguaranteed residual value: $15,000

Lease payments: 10,000 at lease inception and $12,000 on 30 June each year for the next 10 years.

Fair value of leased plant at date of lease inception: $97,469

i. Determine the interest rate implicit in the lease (show detailed workings).

ii. Provide a journal to recognise the lease liability at inception of the lease.

(B) In AASB 16 (International- IFRS 16) for lessors, there are no significant changes as how to account for leases when compared to previous accounting standard for leases AASB 117 (International IAS 17). From the lessor point of view, briefly explain the factors to be considered in deciding whether a lease constitutes an operating lease or a finance lease.