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How do calculate the present value of lease payment

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Reference no: EM132685004

On 1 July 2019, XYZ Ltd leased a machinery from ABC Ltd to be used to be used in the mining operations. The machinery cost XYZ Ltd $120 307, considered to be its fair value on that same day. The capital/finance lease agreement contained the following provisions:

The lease term is for 3 years, commencing on 1st July 2019

The lease is cancellable and with a 10 % charge of the leased asset's fair value from the lessor

Annual lease payment, payable on 30 June each year $40,000

Estimated useful life of machinery 4 years

Estimated residual value of the machinery at the end of useful life $6,000

Bargain purchase option that La Ltd can exercise at the end of lease term $15,000

Interest rate implicit in the lease 7%

REQUIRED:

Question 1: Calculate the present value of lease payment.

Question 2: Prepare the lease schedules for XYZ Ltd.

Question 3: Prepare the journal entries in the records of XYZ Ltd only for the year ended 30 June

Reference no: EM132685004

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