Reference no: EM133114514
Question - MAP Ltd acquired an item of equipment and entered into a non-cancellable lease agreement with ELM Equipment Ltd on 1 January 2019. The lease consists of the following:
Date of inception: 1/1/19
Duration of lease: 5 years
Life of leased asset: 6 years
Lease payments (annual): $250,000 (annual) which includes $30,000 for Maintenance and insurance costs per annum.
Guaranteed residual value
(Added to final payment): $70,000
Interest rate: 6%
Required -
(a) Determine the present value of minimum lease rental payment?
(b) In your own words, explain when a lessee should capitalise on a lease transaction?
(c) In your own words, explain how do we account for service costs included within a contract to lease an asset?
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