Question 1 Au Farm Ltd leases a Tractor from Agrimachine Ltd that cost Agrimachine Ltd $ 80 000 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 $20 000. Lease payments include $10 000 on 1 July 2022 and $12 000 on 3 June of each year for8 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 Au Farm Ltd. c) Explain the exceptional conditions that lease assets and lease liability are not recognised and the lease contract is considered as an operating lease.

Question 1 Au Farm Ltd leases a Tractor from Agrimachine Ltd that cost Agrimachine Ltd $ 80 000 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 $20 000. Lease payments include $10 000 on 1 July 2022 and $12 000 on 3 June of each year for8 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 Au Farm Ltd. c) Explain the exceptional conditions that lease assets and lease liability are not recognised and the lease contract is considered as an operating lease.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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