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Journal entries for both lessee and lessor company

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Problem 1: Journal Entries for both Lessee and Lessor Company (IFRS 16: Leases)

Lessor Company uses leasing in selling its inventory - machineries which is accounted for using perpetual inventory system. On January 1, 2020, a machinery is leased to Lessee Company with the following provisions:

Lease Term = 5 years

Estimated Useful life of Machinery = 5 years

Cost of Machinery = 3,000,000

Estimated Residual Value = 300,000

Initial Direct Cost Paid by Lessor Company = 180,000

Implicit Interest Rate = 12%

Annual Rental Payable at the Beginning of each year = 1,000,000

At the end of the lease term the machinery will revert back to Lessor Company.

Scenario 1: Assume that the Estimated residual value is not guaranteed

Scenario 2: Assume that the estimated residual value is guaranteed.

Reference no: EM132776849

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