Reference no: EM132572002

Question - Djoorla Ltd leased a truck from a truck dealer, Kipilyong Ltd. Kipilyong Ltd acquired the truck for $180,000. The truck will be painted with Djoorla Ltd's logo and advertising and the cost of repainting the truck to make it suitable for another owner four years later is estimated to be $40,000. Djoorla Ltd plans to keep the truck after the lease but has not made any commitments to the lessor to purchase it. The terms of the lease are as follows:

Date of entering the lease: July 1, 2023

Duration of the lease: four years

Life of leased asset: five years, after which it will have no residual value.

Kipilyong Ltd will recognise a residual asset at lease commencement as no amount relating to the possible acquisition of the truck by Djoorla Ltd is accounted for in the lease receivable.

Interest earnt on the residual asset is the interest rate implicit in the lease.

Lease payments: $100,000 at the end of each year.

The interest rate implicit in the lease: 10 per cent

Unguaranteed residual value: $50,000

The fair value of the truck at the inception of the lease: $351,140

On June 30, 2027, Djoorla Ltd pays the residual of $50,000 and purchases the truck. Make all journal entries in the accounts of Djoorla Ltd for June 30, 2027, recording the termination of the lease and the purchase of the truck.

Year 2027:

1. To record the lease payment

2. To record depreciation expense

3. To record the closure of accumulated depreciation upon reclassification of the right of use asset

4. To record the purchase of the truck