User Account

All Pages

What are the minimum lease payments

Assignment Help Accounting Basics
Reference no: EM131633741

Problem -

Cavendish Ltd signs a four-year lease agreement with Froom Rentals Ltd on 21 April 2017 for an item of plant equipment that, on this date, has a fair value of $100,452. Cavendish Ltd incurred costs of $148 in negotiating the lease agreement and in preparing the lease documentation.

The lease term commences on 30 June 2017. According to the lease agreement, there are to be four annual payments of $25,000 with the first payment being made on 30 June 2017.

The plant equipment has an expected economic life of five years and a residual value at the end of the lease term of $15,000 and this amount has been guaranteed by Cavendish Ltd. Cavendish Ltd intends to return the plant equipment to Froom Rentals Ltd at the end of the lease term.

The terms of the lease agreement specify that if Cavendish Ltd cancels the lease then Cavendish Ltd must immediately pay an amount equal to the remaining lease payments and the guaranteed residual value to Froom Rentals Ltd.

The policy of Cavendish Ltd is to depreciate similar assets using the straight-line basis.

The interest rate implicit in the lease is 8%.

Required:

1. What are the minimum lease payments in this lease agreement?

2. If this lease agreement was classified as a finance lease what does AASB 117 Leases require the lessee (Cavendish Ltd) and the lessor (Froom Rentals Ltd) to do (i.e. which financial elements should be recognised) at the commencement of the lease? Also discuss at which value these financial elements should be recognised.

3. Over what time period should Cavendish Ltd depreciate the item of plant equipment? What residual value, if any, should it be depreciated to?

4. Apply the requirements of AASB 117 Leases to determine whether Cavendish Ltd would classify this lease agreement as either an operating lease or as a finance lease. Justify your answer.

5. Determine the amounts that Cavendish Ltd would recognise at the commencement of the lease and prepare the lease payments schedule.

6. Prepare the necessary journal entries to account for the lease.

Reference no: EM131633741

Questions Cloud

Statements about elasticity : True/False, Explain: For each of the following statements about elasticity (price and cross-price), indicate True or False and explain your answer.
Identify what risk the manager of an fi faces : In each of the following cases, identify what risk the manager of an FI faces and whether the risk should be hedged by buying a put or a call option.
Decrease the accuracy of how we can perceive others : decrease the accuracy of how we can perceive others, other media has increased our social networking
What type of opportunities or obligations does manager have : Suppose that an FI manager writes a call option on a T-bond futures contract with an exercise price of 114 at a quoted price of 0-55.
What are the minimum lease payments : What are the minimum lease payments in this lease agreement? Prepare the necessary journal entries to account for the lease
Define profession cultural mix can be an advantage : What professions comprise your career field workplace? Discuss at least two ways that this profession cultural mix can be an advantage
List a way in which home health compare can be utilized : List a way in which Home Health Compare can be utilize? What is the difference between process and outcome care measures? What are the typical services covered?
Define provoke our acceptance of hannibal lecter : Use a specific scene analysis to show how Demme uses editing to provoke our acceptance of Hannibal Lecter
What is the pension fund manager interest rate risk exposure : When purchased in two years, the T-bond will pay interest semiannually. Currently, it is selling at par.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Theory of interest - term structure of interest rates

Term Structure of Interest Rates

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd