Question

SBW Goalposts Ltd leases a truck from the NZRU Bank so that it can deliver goalposts...

SBW Goalposts Ltd leases a truck from the NZRU Bank so that it can deliver goalposts to its customers on 1 July 2015. Lease payments of $23,000 are required annually in advance for 5 years (payable 30 June), and a residual payment of $6,592 is required. The implicit interest rate in the lease is 10% p.a. The truck has a useful life of 10 years with a salvage value of $10,000.

Required

Record the necessary journal entries for SBW Goalposts on the following dates

a. 1 July 2015

b. 30 June 2016

c. 30 June 2019

Business   Accounting   
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Answer #1

Step 1

On 1 July 2015, following journal entry would be passed in the books of SBW Goalposts Limited

Fixed Assets - Truck Dr. $ 23,000

Lease liability    Cr $23,000

(Lease payment of $23,000 payable to NZRU Bank)

Step 2

On 31 June 2016, following journal entries would be made

Lease liability Dr $4,600

Interest expenses Dr    $2,300

   Cash Cr $ 6,900

( On account of leasse payment and interest thereon to NZRU Bank)

As the Truck has been taken as asset in the books of SBW Goalposts Limited, Depreciation has to be books in the books

Depreciation on Truck Dr    $1300

Acumulated depreciation of Truck Cr    $1300

( Taking residual value of truck after expiry of 10 years life of truck, depericiation worked out on straight line method)

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