Reference no: EM133005799
Question - Alfalah Leasing Limited (the lessor) has entered into a five years agreement with Hashim Engineering Works (the lessee) to lease a machine with an expected useful life of 7 years. The cost of machine is Rs.609, 000. The following information relating to lease transaction is available:
The lease contains a purchase bargain option at Rs.100,000. At the end of the lease term, the value of the machine will be Rs.200,000
Lease installments of Rs.142,000 are payable annually, in arrears, on Dec, 31.
The implicit interest is to be computed at an annual rate of 10.5%.
Date of commencement of lease is Jan 1, 2015.
Required -
1. Prepare the Amortization table for the lease agreement
2. Journal entries for the year ending Dec. 31, 2018 in the books of lessor and lessee. Ignore tax.
3. Produce extracts from the statement of financial position including relevant notes as at Dec. 31, 2018 to show how the transactions carried out in 2018 would be reflected in the financial statements of the lessee keeping in mind all the disclosure requirements of leased assets presented in Schedule 4 of Companies Act, 2017 amended in 2019.
4. Justify the kind of lease that is presented in the above scenario. (At least 2 reasons).
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