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Explaining the treatment of the lease

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Reference no: EM132912576

Apply the criteria of the AASB 15 Revenue from contracts with Customers to explain what may be recognised by Business Systems Ltd as income for the year ended 30 June 2019 and 30 June 2020.

On 1 July 2017, Torino Motors Ltd acquired equipment under a four-year finance lease agreement. The present value of the lease payments is $431,213. It has an estimated useful life of five years and estimated residual value of $31,213. The implicit rate of interest on the lease was 8% per annum. The lease involved five payments, an initial payment of $100,000 and four annual payments on 30 June each year of $100,000.

Torino Motors Ltd will retain the equipment at the end of the lease.

Required:

Problem (a) You are the accountant at Torino Motors Ltd and one of the major shareholders has asked you to clarify the reasons for the way the lease is reported in the Financial Statements. give a brief comment for the shareholder explaining the treatment of the lease, including the effect of the lease on any related items in the income statement and balance sheet Torino Motors Ltd.

Reference no: EM132912576

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