Reference no: EM133030884

Question - Swifty Inc. leased a new crane to Blue Spruce Construction Inc. under a six-year, non-cancellable contract starting February 1, 2020. The lease terms require payments of $21,900 each February 1, starting February 1, 2020. Swifty will pay insurance and repair and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of $160,000, and a cost to Swifty of $160,000. The crane's estimated fair value is $50,000 at the end of the lease term. No bargain purchase or renewal options are included in the contract. Both Swifty and Blue Spruce have calendar year ends and use IFRS 16. Collectibility of the lease payments is reasonably certain and there are no uncertainties about unreimbursable lessor costs. Blue Spruce's incremental borrowing rate is 8% and Swifty' implicit interest rate of 7% is known to Blue Spruce.

a) Would the classification of the lease have been different if Swifty and Blue Spruce had been using ASPE?

b) Prepare all the entries related to the lease contract and leased asset for the year 2020 for the lessee and lessor, assuming the following executory costs: insurance of $430 covering the period February 1, 2020, to January 31, 2021 and a one-year maintenance contract beginning February 1, 2020 costing $1,180. Straight-line depreciation is used for similar leased assets. The crane is expected to have a residual value of $19,000 at the end of its useful life.

c) Identify what will be presented on the statement of financial position and statement of income of both the lessee and the lessor at December 31, 2020.