Reference no: EM133174010

Question - David Ltd enters into a five-year lease agreement with Brothers Ltd on 1 July 2023 for an item of machinery.

There is a bargain purchase option that David Lid 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 six years.

There are to be five annual payments of $110 000, the first being made on 30 June 2024. Included within these payments is $10 000 representing payment to the lessor for insurance and maintenance of the equipment.

Additional information -

Implicit interest rate: 10 per cent

Present value of an annuity in arrears of $1 for five years at 10 per cent = ?

Present value of $1 in five years at 10 per cent = ?

Required -

(a) Determine the initial measurement of the lease liability.

(b) Determine the initial measurement of right-of-use asset cost.