Using Australian Accounting System - Latrobe University
Harry Ltd enters into a non-cancellable five-year lease agreement with Porter Ltd on 1 July 2018. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $647,192.
The machinery is expected to have an economic life of six years, after which time it will have an expected residual value of $105,000. There is a bargain purchase option that Harry Ltd will be able to exercise at the end of the fifth year for $140,000.
There are to be five annual payments of $175,000, the first being made on 30 June 2019. Included within the
$175,000 lease payments is an amount of $17,500 representing payment to the lessor for the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. The rate of interest implicit in the lease is 12%.
Prepare the extract of the statement of financial position for the year ending 30 June 2019 and comparative year relating to the lease asset and lease liability.
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