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Lessor Ltd, who leases out equipment, has requested your help because their accountant has gone on extended stress leave. The lease details, for an item of equipment purchased on 31 March 2019, are below:

Required:

Assume the lease was classified as a finance lease:

(i) Prepare the journal entry, on the commencement date, to initially recognise the finance lease receivable. Show your workings.

(ii) Complete the table in the answer booklet

(iii) Determine the carrying amount of the leased equipment as at 31 March 2023; this date is after the lease term has finished. Explain your answer

(iv) Prepare financial statements, over the lease period, to reflect the effects of the lease. Lessor Ltd classifies interest income as cash from investing activities.

Assume the lease was classified as an operating lease:

(i) Prepare the necessary journal entries over the period of the lease period. Treat the purchase option price amount as an extra final payment, i.e., an operating lease would not have a purchase option. Show your workings.

(ii) Prepare financial statements, over the lease period, to reflect the effects of the lease.

Note: You determined the cost of the PPE-Equipment item in the finance lease receivable recognition journal entry above.

1 April 2019 $30 000 3 years Commencement date Upfront payment due on the commencement date Lease term for equipment item Fixed payments per annum at year end Purchase option price. The lessee is reasonably certain to exercise this option. Interest rate implicit in the lease Economic life of equipment asset Depreciation method used by lessor The relevant present value discount factors are: Present value of $1 in n periods n=31-6% Present value of an annuity n=3 i = 6% $100 000 $ 50 000 6% 5 years Straight line 0.8396 2.6730 (1) Journal entry to initially recognise the finance lease receivable: Dr Cr 1/4/2019 Workings for (i): (ii)Table Lease receipts Interest income 6% Finance lease receivable reduction Finance lease receivable balance Commencement of lease 01/4/2019 31/3/2020 31/3/2021 31/3/2022 31/3/2022 $ (iii) The carrying amount of the leased equipment as at 31 March 2023: Explain your answer: (iv) Finance lease classification. Lessor Ltd financial statements over the lease period: Lessor Ltd Statement of Financial Position as at 31 March: 2020 2021 2022 Current assets: Non-current assets: Lessor Ltd Statement of Comprehensive Income for the year ended 31 March: 2020 2021 Por L section: 2022 OCI section: Lessor Ltd Statement of Cash Flows for the year ended 31 March: 2020 2021 2022 CFOA: CFIA: 1 April 2019 $30 000 3 years Commencement date Upfront payment due on the commencement date Lease term for equipment item Fixed payments per annum at year end Purchase option price. The lessee is reasonably certain to exercise this option. Interest rate implicit in the lease Economic life of equipment asset Depreciation method used by lessor The relevant present value discount factors are: Present value of $1 in n periods n=31-6% Present value of an annuity n=3 i = 6% $100 000 $ 50 000 6% 5 years Straight line 0.8396 2.6730 (1) Journal entry to initially recognise the finance lease receivable: Dr Cr 1/4/2019 Workings for (i): (ii)Table Lease receipts Interest income 6% Finance lease receivable reduction Finance lease receivable balance Commencement of lease 01/4/2019 31/3/2020 31/3/2021 31/3/2022 31/3/2022 $ (iii) The carrying amount of the leased equipment as at 31 March 2023: Explain your answer: (iv) Finance lease classification. Lessor Ltd financial statements over the lease period: Lessor Ltd Statement of Financial Position as at 31 March: 2020 2021 2022 Current assets: Non-current assets: Lessor Ltd Statement of Comprehensive Income for the year ended 31 March: 2020 2021 Por L section: 2022 OCI section: Lessor Ltd Statement of Cash Flows for the year ended 31 March: 2020 2021 2022 CFOA: CFIA

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