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Prepare the lease payment schedule for hidden paradise ltd

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Reference no: EM132969744

Question - Accounting for Leases 10 Marks On 1 July 2009, Babasiga Ltd leased a processing plant to Hidden Paradise Ltd. The plant was purchased by Babasiga Ltd on 1 July 2009 for its fair value of $467 112. The lease arrangement contained the following provisions: Lease term 3 years Economic life of plant 5 years Annual rental payment, in arrears (commencing 30/6/2010) $150 000 Residual value at the end of the lease term $90 000 Residual guaranteed by lessee $60 000 Interest rate implicit in lease 7% PV of MLP $442 623 The lease is cancellable only with the permission of the lessor Hidden Paradise Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and lessor.

Required -

a) Classify the lease for both the lessee and the lessor as an operating or finance lease per IAS17.

b) Prepare the lease payment schedule for Hidden Paradise Ltd.

c) Prepare the journal entries for Hidden Paradise Ltd for the year ended 30 June 2010.

Reference no: EM132969744

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