Reference no: EM133110915
Question - ABC Ltd enters into a five-year lease agreement with Legal Ltd on 1 July 2023 for an item of machinery.
There is a bargain purchase option that ABC Ltd will be willing to exercise at the end of the fifth year for $90,000. The machinery is expected to have a useful life of five years
There are to be five annual payments of $140, 000, the first being made on 30 June 2024. Included within these payments is $20,000 representing payment to the lessor for insurance and maintenance of the equipment.
Additional information
Implicit interest rate: 8 per cent
Present value of an annuity in arrears of $1 for five years at 8 per cent = 3.9927
Present value of $1 in five years at 8 per cent = 0.6806
Required -
1. Determine the initial measurement of the lease liability.
2. Determine the initial measurement of right-of-use asset cost.
3. Provide the accounting journal entries for the year ended 30 June 2024.
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