Question - AC Toys Pty Ltd (AC Toys) acquired an item of plant and equipment with a fair value of $500,000 on 30 June 20X7 via a non-cancellable finance lease. The terms of the lease are as follows:
- Ten equal annual payments of $100,000 (excluding GST) to be made in advance (the first installment was paid on 30 June 20X7)
- Interest rate implicit in the lease is 20.24183%
- Estimated useful life of the asset is 10 years. Straight-line depreciation method to be used
- Present value of minimum lease payments (PVMLP) at 30 June 20X7 is $500,000.
Required:
(a) Prepare the journal entries necessary for a manufacturer or dealer lease in the accounts of the lessor for the financial years ended 30 June 20X7 and 30 June 20X8. (Assume that the cost of the asset to the lessor was $450,000.)
(b) Using the same information as for part (a) above, and assuming that the carrying value of the asset is $500,000 in the lessor's books, prepare the journal entries necessary for a finance lease in the accounts of a lessor that is not a manufacturer or dealer for the financial years ended 30 June 20X7 and 30 June 20X8.