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Explain the benefits of the new standard

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On 1 July 2020, Sand Ltd enters into a seven-year lease agreement with Bill Ltd. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $231 140. The lease payments are made at the end of each year and amount to $60,000. The lease payments include cost of servicing the machinery at an amount of $10,000 per annum. The fair value of truck at inception of the lease is $263,948.

  • Bill Ltd manufactures the machinery. The cost of the machinery to Bill Ltd is $200,000. The machinery is expected to have an economic life of eight years, after which it will have no residual value.
  • Sand Ltd has not made any commitment to the lessor to purchase it. There is an unguaranteed residual at the end of the lease term of $40 000. Interest rate implicit in the lease is 10 per cent.

Required

Problem 1: AASB 16 Leases came into effect on 1 January 2019. It replaces the old Standard AASB 117 Leases. Explain the differences between AASB 117 and AASB 16, and the benefits of the new Standard

Reference no: EM132907521

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