On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its fair value of $467 112. The lease agreement contained the following provisions: Lease term 3 years Economic terms of the plant 5 years Annual rental payments, in arrears (commencing 30?6/2021) $150,000 Residual value at the end of lease term $90,000 Residual guaranteed by lessee $60,000 Interest rate implicit in lease 7% The lease is cancellable only with the permission of the lessor Holmes Ltd intends to return the processing plant to Sherlock Ltd at the end of the lease term. The lease has been classified as a finance lease by Sherlock Ltd. Required: Prepare: (a) the lease payments schedule for Holmes Ltd (show all workings) (b) the journal entries in the records of Holmes Ltd for the year ended 30 June 2022.
Question 1 (theory)
What was the major change in accounting for leases introduced by new accounting standard AASB16/IFRS16? Why was such a change launched by the professional standard setting bodies to abandon AASB117/IAS17?
Question 2
On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its fair value of $467 112. The lease agreement contained the following provisions:
|
Lease term |
3 years |
|
Economic terms of the plant |
5 years |
|
Annual rental payments, in arrears (commencing 30?6/2021) |
$150,000 |
|
Residual value at the end of lease term |
$90,000 |
|
Residual guaranteed by lessee |
$60,000 |
|
Interest rate implicit in lease |
7% |
|
The lease is cancellable only with the permission of the lessor |
|
Holmes Ltd intends to return the processing plant to Sherlock Ltd at the end of the lease term. The lease has been classified as a finance lease by Sherlock Ltd.
Required:
- Prepare:
(a) the lease payments schedule for Holmes Ltd (show all workings)
(b) the
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