Prepare the journal entries required to account

Assignment Help Financial Accounting

Reference no: EM133492906

PART 1

Beauty Ltd entered into a lease for some equipment with Beast Ltd on 1 July 2022. The details of the lease agreement were as follows:

• The lease can be cancelled if Beauty Ltd agrees to take out another lease of equivalent value and duration and pays a penalty of $20,000.

• The term of the lease is 4 years.

• There are four annual lease payments of $172,000 paid annually in arrears on 30 June each year, commencing on 30 June 2023.

• The residual value at the end of the lease of $188,000. Beauty Ltd has guaranteed 70% of this residual value. • The economic life of the asset is 6 years.

• The residual value at the end of the economic life is $2,954.

• The interest rate implicit in the lease is 9%.

• The fair value of the equipment as at 1 July 2022 is $650,500.

• Beauty Ltd incurred costs of $6,500 in negotiating the lease. Costs of $10,000 were incurred by Beast Ltd.

• There is an option in the lease agreements that allows Beauty Ltd to purchase the equipment at the end of the lease term for the guaranteed residual value. It is expected that Beauty Ltd (the lessee) will retain the equipment at the end of the lease by paying the guaranteed residual value at the end of the lease term (i.e., 30 June 2026)

REQUIRED

1) Calculate the amount of the right of use asset and the lease liability to be recognised at the beginning of the lease. You need to show all calculations and the basis for these when required. Please round up to the closet amount.

2) Draw up a schedule of lease payments for the duration of the lease.

3) Prepare the general journal entries required to be prepared by Beauty Ltd to account for the lease for the year ending 30 June 2023 (i.e., from 1 July 2022 to 30 June 2023). Show all the calculations and the dates for all journal entries. Narrations are NOT required.

PART 2

Beauty Ltd entered into a leasing arrangement with Belle Ltd for an excavator. The details of the lease agreement were as follows:

• The lease is for 1 year.

• As an incentive to enter into the lease, Belle Ltd provided for the last one month to be rent free.

• There are 6 lease payments (a payment every 2 months) in advance. These are comprised of: o 5 payments of $18,000 payable in advance with the first of these payable on 1 April 2023.

o 1 payment of $9,000 on 1 February 2024.

• The fair value of the excavator at 1 April 2023 was $980,000.

REQUIRED

Assuming that the lessee has elected to apply the recognition exemption in AASB 16, prepare the journal entries required to account for this lease in the books of the lessee, Beauty Ltd for 30 June 2023 (i.e., from 1 April 2023 to 30 June 2023). Show all calculations and dates for all journal entries. Narrations are NOT required.

Reference no: EM133492906

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