Question

Hawke Ltd leased an item of machinery to Banda Ltd on 1 July 2013. The agreement contained the following details: Lease term 3 years Initial lease payment $22,000 (at commencement of leasel $22,000 (due at 30 June each year) Annual lease payment Guaranteed residual payment 10,000 (due on 30 June 2016) nterest rate implicit in the lease Useful life of machinery Residual value of machinery The lease is non-cancellable and the machinery is to be retained by Banda Ltd at the end of the lease term The fairvalue of the machinery at 1 July 2013 was $85,000 and the present value of minimum lease payments is $84.224 10% 6 years $20,000 Required (a) Discuss whether the lease should be recognized as a finance or operation lease b) Prepare a schedule of lease payments for Banda Ltd (c) Prepare the general journal entries equired for the firstyear of the lease (the year ending 30 June 2014) (d) Prepare an extract from the statement of financial position as at 30 June 2015 providing the figures for the leased asset

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