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Prepare lease liability schedule for abc

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Reference no: EM132642705

ABC is considering acquiring a machine from XYZ. It has two options; cash purchase at a cost of INR 14,274,890 or a lease.

The terms of the lease are as follows:

  1. The lease period is for four years from 1 January 2020 with an annual rental of INR 5,000,000 payable on 31 December each year. The lessee is required to pay all repairs, maintenance and other incidental costs. Lease term is extendable for a further one more year and ABC is uncertain about exercising this option.
  2. The interest rate implicit in the lease is 15% p.a. 
  3. ABC has an option to purchase the machine at the end of lease term.Estimated useful economic life span of the machine is five years.

Required:

Question a) Prepare Lease Liability Schedule for ABC.

Question b) Pass Journal Entries for the year ended 2020 in Books of ABC and XYZ.

Question c) Prepare extract of the Financial Statements for ABC for the year ended 31 December 2020.

Reference no: EM132642705

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