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Prepare journal entries to account for lease transaction

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Question - Gerbera plc (lessor) enters into a finance lease with Daisy plc (lessee) on 1 July 2019 for an item of machinery that has a fair value at that date of £226,718. The lease is for a period of 4 years, with annual lease payments of £62,000 due on 30 June each year, the first payment to be made in 2020. There is a bargain purchase option of £15,000 available for Daisy to exercise at the end of the lease period. The rate of interest implicit in the lease is 6%. It costs Gerbera plc £190,000 to manufacture the machine. The economic life of the leased asset is five years, after which it will have no residual value. Daisy plc uses the straight-line method for similar assets.

Required - Prepare the journal entries to account for the lease transaction in the books of the lessor, Gerbera plc, for 1 July 2015 and 30 June 2016.

Reference no: EM133100122

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