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Compute the rate of interest implicit in the lease

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Reference no: EM133006349

Burt Ltd enters into a non-cancellable B-years lease agreement with Earnie Ltd on 1 July 2023. The lease is for an item of machinery that, at the inception ofthe lease, has a fair value of $1,398,552.

  • The machinery is expected to have an economic life of 9 years, after which time it will have an expected residual value of $ 250,000. There is a bargain purchase option that Burt Ltd will be able to exercise at the end of the 6th year for $200,000.
  • There are to be 6 annual payments of $450,000, the first being made on 30 June 2024. Included within the $450,000 lease payments is an amount of $40,000 representing payment to the lessor for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis.

Problem 1: Compute the rate of interest implicit in the lease and calculate the present value of the lease payment

Problem 2: journal entries in burt ltd at the start of the agreement, for the years ending 30 June 2024 and 2025

Problem 3:  prepare the portion of the statement of financial position for the years ending 30 June 2024 and 2025, relating to the leased asset and lease liability

Reference no: EM133006349

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