Relate to the above Assignment - Question 3 three - part B
Required:
Assume also that the unguaranteed residual value of the building at the end of the lease term
is $100,000. Prepare any necessary journal entries in the books of Bushman Ltd for the period
1 July 2020 to 30 June 2023 to record the lease in accordance with the requirements of AASB
16 ‘Leases’. Show all necessary working, explanations and assumptions to support your
answer.
Part C
If Assume also that the unguaranteed residual value of the building at the end of the lease term is $100,000.
NPV = PV annuity for remaining 4 payment + PV of the residual value
= $200,000/5%[1 – 1 / (1+5%)4] + $100,000 *(1/(1+5%)4)
= $709,190.101 + 82,270.247
= $791,460.348
Period |
Lease liability (opening balance) |
Lease payment (cash) |
Reduction in lease liability |
Interest expense (@5%) |
Lease liability (close balance) |
1/7/2020 |
791,460.348 |
|
|
|
|
30/6/2021 |
791,460.348 |
200,000 |
160,426.983 |
39,573.017 |
631,033.365 |
30/6/2022 |
631,033.365 |
200,000 |
168,448.332 |
31,551.668 |
462,585.033 |
30/6/2023 |
462,585.033 |
200,000 |
176,870.748 |
23,129.252 |
285,714.285 |
30/6/2024 |
285,714.285 |
200,000 |
185,714.285 |
14,285.713 |
100,000 |
Totals |
|
$800,000 |
$791,460.348 |
$108,539.65 |
|
The useful life is estimated to be 10 years
Depreciation: $791,460.348 / 10 years = $79,146
Journal entries about 1 July 2020 to 30 June 2023
1/7/2020
Dr Right-of-use asset – equipment 791,460.348
Cr Lease liability 791,460.348
30/6/2021
Dr Interest expense 39,573.017
Dr Lease liability 160,426.983
Cr Cash 200,000
30/6/2021
Dr Depreciation expense 79,146
Cr Accumulated depreciation 79,146
30/6/2022
Dr Interest expense 31,551.668
Dr Lease liability 168,448.332
Cr Cash 200,000
30/6/2022
Dr Depreciation expense 79,146
Cr Accumulated depreciation 79,146
30/6/2023
Dr Interest expense 23,129.252
Dr Lease liability 176,870.748
Cr Cash 200,000
30/6/2023
Dr Depreciation expense 79,146
Cr Accumulated depreciation 79,146
(Unsure about this solution)