Reference no: EM132865157
Question - Surrey Steelworks Limited (SSL), leased metal molding equipment, a specialized asset with a 10 year useful life, from Fraser Valley Leasing Limited (FVL). Both companies have a December 31 year end and both companies report under IFRS.
The lease has the following characteristics:
Lease Payment: $18,750
Payment frequency: annual
Payment timing: Beginning of the year
Lease term: 7 years
Lease commencement: October 1, 2020
Purchase option at the end of lease: $8,000
-FVL priced the lease to earn a return of 6% (the implicit rate) and the estimated fair value of the equipment is $100,000.
-The leased equipment is a high resale piece of equipment, the estimated future market value of the asset is expected to be above $8,000.
PART A - From the lessor's perspective, analyze ALL of the lease criteria and provide a conclusion as to whether this is a finance or operating lease.
PART B - Make the entries required at October 1, 2020 and December 31, 2020 for Surrey Steelworks Ltd.