Reference no: EM132805923
Question - On 1 July 2020, Asia Ltd (lessor) entered into an agreement to lease a processing plant with a fair value of $57,000 to Sydney Ltd (lessee). The terms of the lease agreement were:
Lease term 3 years
Annual rental payment, in arrears $25,000
The total residual value of the plant at the end of lease term $6,000
Residual value guarantee by Sydney (lessee) Ltd $5,000
The economic life of this plant is four years. Annual rental payment commences on 30 June 2021. At the end of the lease term, the plant is to be returned to Asia ltd. In setting up the lease agreement, Asia Ltd incurred $1,498 in legal fees and stamp duty costs. The annual rental payment includes $5,000 to reimburse Asia Ltd for maintenance costs incurred on behalf of Sydney Ltd. The lease is cancellable, but only with the permission of the lessor. The interest rate implicit in the lease is 6%. Asia Ltd treats this lease as a finance lease.
Note: If necessary, you may use the following present value factors:
Present value of $1 (3 years, 6%) = 0.8396
Present value of $1 (4 years, 6%) = 0.7921
Present value of an annuity of $1 (3 years, 6%) = 2.6730
Present value of an annuity of $1 (4 years, 6%) = 3.4651
REQUIRED -
1. Prepare journal entries for Sydney Ltd for the year ended 30 June 2021 in accordance with AASB 16 Leases. Exclude journal narrations.
2. Prepare journal entries in the records of Asia Ltd for the year ending 30 June 2021 in accordance with AASB 16 Leases. Exclude journal narrations.
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