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INTERMEDIATE FINANCIAL ACCOUNTING

Lessee Ltd decided to lease from Lessor Ltd a motor vehicle that had a fair value at 30 June 2010 of $38 960. The lease agreement contained the following provisions:

Lease term (non-cancellable) - 3 years

Annual rental payment (commencing 30/6/10) - $11 200

Annual maintenance and insurance included in rental payments - $1 200

Guaranteed residual value (expected fair value at end of lease term) - $12 000

Extra rental per annum if the car is used outside the metropolitan area - $1 000

Interest rate implicit in the lease - 5% p.a.

The lease is considered a finance lease.

The expected useful life of the vehicle is 5 years with no residual.

The PV of the minimum lease payments is equal to the fair value of the vehicle at the inception of the lease.

The car was used outside the metropolitan area in the 2011-12 year.

Scenario 1: At the end of the 3-year lease term Lessee Ltd intends purchasing the vehicle for the guaranteed residual value.

Scenario 2: At the end of the 3-year lease term Lessee Ltd intends returning the vehicle. On 30 June 2013 Lessee Ltd returned the vehicle to Lessor Ltd with both parties agreeing the fair value was $10 000.

Required -

a. Prepare the journal entries for Lessee Ltd from 30 June 2010 to 30 June 2013 applying Scenario 1.

b. Complete the table showing the impact of the lease arrangement on the financial statements at each 30 June reporting date in 2010, 2011, 2012 and 2013.

c. Prepare the journal entries for Leesee Ltd on 30 June 2013 applying Scenario 2.

Attachment:- Assignment File.rar

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M92429250

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