On 1 July 2021 Fairval Ltd (the lessee) contracts a leaseequipment for five years...

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Accounting

On 1 July 2021 Fairval Ltd (the lessee) contracts a leaseequipment for five years at an annual rental of $20,000, with thefirst payment payable immediately and subsequent annual paymentsdue on 30 June. The equipment could have been purchased from thesupplier for $80,747 on 1 July 2021 if leasing was not choseninstead. The rate of interest implicit in the lease is 12% and theend of the reporting period is 30 June. Assume the equipment isreturned to the lessor at the end of the lease, when the residualvalue of the equipment is nil.
1?Prepare the general journal entries for the lessee for theremaining term of the lease (not covered by part (1) of thisquestion) up until 30 June 2023.
2?Based on the case, explain the motivation for the standardsetter to release the new lease standard (AASB 16).

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1Fairval LtdLessee Testing for operating lease or a capital lease 1 Transfer of ownership No 2 Bargain purchase option No 3 Length of lease term or equal to 75 of total life Not very clear 4 Present value of MLP or equal to 90 of assets current FMV Yes PV of the 5 beginning of year Lease payments at 12 80747 as calculated below 100 of FMV PV of beginning of term lease payments Using PV of Annuitydue formula 2000011125012112 80747 As atleast 1 of the above criteria is See Answer

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In: AccountingOn 1 July 2021 Fairval Ltd (the lessee) contracts a leaseequipment for five years at...On 1 July 2021 Fairval Ltd (the lessee) contracts a leaseequipment for five years at an annual rental of $20,000, with thefirst payment payable immediately and subsequent annual paymentsdue on 30 June. The equipment could have been purchased from thesupplier for $80,747 on 1 July 2021 if leasing was not choseninstead. The rate of interest implicit in the lease is 12% and theend of the reporting period is 30 June. Assume the equipment isreturned to the lessor at the end of the lease, when the residualvalue of the equipment is nil.1?Prepare the general journal entries for the lessee for theremaining term of the lease (not covered by part (1) of thisquestion) up until 30 June 2023.2?Based on the case, explain the motivation for the standardsetter to release the new lease standard (AASB 16).