Reference no: EM133053920
Question 1 - On 30 June 2017 Gisborne Ltd lease a vehicle to Tauranga Ltd. Gisborne Ltd had purchased the vehicle on that day for its fair value of $89,721. The lease agreement contained the following:
Lease term 4 years
Annual payment, payable in advance on 30 June each year $23,900
Economic life of the vehicle 6 years
Estimated residual value at end of lease term $15,000
Residual value guaranteed by lessee $7,500
The following information relates to the lease:
Included in the annual payment is an amount of $1,900 to cover reimbursement of insurance and maintenance costs paid by the lessor (i.e. executory costs).
The directors of Tauranga Ltd have indicated that they intend to return the asset to Gisborne Ltd at the end of the lease term.
The Present Value (PV) of lease payments has been calculated to be $85,457.
The interest rate implicit in the lease is 7%.
Required - Prepare a schedule summarizing the lease payments to be made over the term of the lease.
Question 2 - Using the fundamental principle from IAS 12 Income Tax, explain whether a deferred tax asset or a deferred tax liability should be recognised in relation to the following scenarios. (Please explain thoroughly and provide detailed explanation with full answers)
1. Development costs
Development costs of $1000 that are recognised as an asset (i.e. capitalised) and will be amortised to the statement of P/L and OCI. The costs were deducted in determining taxable profit when they were incurred (i.e. when the cash was paid).
2. Trade Receivables
Carrying amount of trade receivables is $150. The $150 is net of expected doubtful debts of $50.
Question 3 - In 2015, Ruby Ltd issued $100 million of Gold bonds due in July 16, 2016. At the issue date, the yield was 540 basis points (5.4%) above the yield on the Gold bonds due in April, 2017. The price and yield to maturity of the Gold issue at September 30, 2015-2017 was reported as follows:
Price to Maturity:
2015: 15.33%
2016: 16.68%
2017: 19.15%
The assumed yield on the Gold bond for the year 2016 is:
a. 23.65%
b. 22.08%
c. 20.73%
d. 24.55%
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