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Kevin Pte Ltd signs a 5-year non-cancellable lease for a piece of equipment with SamuelCompany on 1 Jan 2012. Kevin's financial year ends on 31 Dec and depreciates fixed assets on astraight-line basis.Under the lease agreement, Kevin has to pay annual instalments of $80,000 in arrears on 31 Deceach year. The lease has no renewal option and the equipment will be returned to SamuelCompany on 1 Jan 2017. Other information relating to the equipment are:
i) The equipment has an economic useful life of 6 years.
ii) The fair value of the equipment on 1 Jan 2012 was $303,263.iii) The implicit interest rate of the lease is $10%.
Required:
a) Explain why Kevin Pte Ltd should treat this lease as a financial lease.
b) Prepare a lease amortization schedule for the entire lease period for the firm. (Round upyour figures to whole numbers).
c) Prepare appropriate journal entries for years ending 31 Dec 2012 and 31 Dec 2013.
d) For years ending 31 Dec 2012 and 31 Dec 2012, prepare extracts of:- the statements of comprehensive income- the statements of financial position.
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