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Calculate the present value of lease payment

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Question - On 1 July 2019, XYZ Ltd leased a machinery from ABC Ltd to be used to be used in the mining operations. The machinery cost XYZ Ltd $120 307, considered to be its fair value on that same day. The capital/finance lease agreement contained the following provisions: The lease term is for 3 years, commencing on 1st July 2019 The lease is cancellable and with a 10 % charge of the leased asset's fair value from the lessor Annual lease payment, payable on 30 June each year $40,000 Estimated useful life of machinery 4 years Estimated residual value of the machinery at the end of useful life $6,000 Bargain purchase option that La Ltd can exercise at the end of lease term $15,000 Interest rate implicit in the lease 7% REQUIRED:

Required -

1. Calculate the present value of lease payment.

2. Prepare the lease schedules for XYZ Ltd.

3. Prepare the journal entries in the records of XYZ Ltd only for the year ended 30 June 2020.

Reference no: EM132727524

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