Au farm ltd leases a tractor from agrimachine ltd that cost agrimachine ltd $80000 to...
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Au farm ltd leases a tractor from agrimachine ltd that cost agrimachine ltd $80000 to manufacture. The lease agreement started on 1 July 2022 for 8 years. The life of the tractor is estimated to be 8 years with an unguaranteed residual value of $20000. Lease payments include $10000 on 1 july 2022 and $12000 on 30 June of each year for 8 years. The rate of interest implicit in the lease is 6%.
required:
a) prepare the journal entry on 1 july 2022 in the books of agrimachine ltd
b) prepare the journal entry on 30 june 2023 in the books of agrimachine ltd
c) explain the exceptional conditions that lease asserts and lease liability are not recognized and the lease contract is considered as an operating lease.
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