Determine the initial measure of the lease liability

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Question - On 1 July 2022, ABC Ltd enters into a four-year lease of a machine. ABC Ltd will pay fixed annual payments of $90,000 for four years with the first payment on 30 June 2023.

To enter the lease ABC Ltd incurs direct costs of $12,000 at the commencement of the lease term.

There is a bargain purchase price option (that ABC Ltd is willing to exercise) for $30,000 at the end of the lease term.

The machine is expected to have a useful life of 10 years and no residual value. Lessee's incremental borrowing rate: 10%.

Required -

1. Determine the initial measure of the lease liability and right-of-use asset and prepare the related accounting journal entry.

2. Prepare the lease payment schedule.

Reference no: EM133190058

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