Reference no: EM132547609
Question - On 1 July 2019, Harry Ltd leased a machinery from Potter Ltd. The finance lease agreement contained the following provisions:
The lease term is for 3 years, starting on 1 July 2019
The lease is non-cancellable
Annual lease payment, payable on 30th June each year 165,000
The estimated useful life of the machinery 5 years
Estimated residual value of the machinery at end of useful life $30,000
Interest rate implicit in the lease 6%
There is a bargain purchase option that Harry Ltd will be able to exercise at the end of the lease term for $60,000. The annual lease payment includes $15,000 representing payment to the lessor for insurance and maintenance of the machinery.
Required -
a) Calculate the present value lease liability amount as at 1 July 2019.
b) Prepare the journal entries in relation to the lease for the year ending 30 Jun 2020.