(A)
Supply Ltd entered into a non-cancellable five-year leasearrangement with Customer Ltd on 1 July 2019. The lease is for anitem of machinery. There are to be five annual payments of $315000, the first being made on 30 June 2020. The implicit interestrate is 12%. The Machinery is expected to have an economic life ofsix years, after which time it will have an expected residual valueof $210 000. There is a bargain purchase option that Customer Ltdwill be able to exercise at the end of the fifth year for $280 000.Customer Ltd determined that this contract contains a lease.
REQUIRED:
Prepare the journal entries in the books of the lessee (CustomerLtd) from 1 July 2019 to 30 June 2020 (the end of the reportingperiod). Show all working.
(B)
Customer Ltd enters into a 10-year contract with Supplier Ltdfor the right to use two specified physically distinct dark fibreswithin a larger cable connecting Hong Kong to Tokyo. Customer Ltdmakes the decisions about the use of the fibres by connecting eachend of the fibres to its electronic equipment (i.e., Customer‘light’ the fibres and decides what data and how much data totransfer). If the fibres are damaged, Supplier Ltd is responsiblefor the repairs and maintenance. Supplier Ltd owns extra fibres butcan substitute those for Customer Ltd’s fibres only for reasons ofrepairs, maintenance or malfunction.
REQUIRED:
Determine whether the contract contains a lease. Please explainand justify your conclusion according to AASB 16.
