ADMS 3595 Lecture Notes - Lecture 1: Operating Lease, Finance Lease, Interest Rate
Chapter 20 – Leasing
Supplementary Questions
Page 1
IFRS 16: - Lessee
Question 1:
On December 31, 2017, Delta Company leased equipment from Thomas Ltd (Lessor). The details of the
lease agreement are as follows:
• Equipment’s fair value at inception of lease $300,000
• Residual value (end of lease term) $50,000
• Residual value (end of useful life) $30,000
• Lease term 7 years
• Useful life of asset 10 years
• Delta’s incremental borrowing rate 10%
• Interest rate implicit in the lease (known to lessee) 8%
• Delta uses the straight-line depreciation method for all of its assets.
Consider the following independent situations:
a) The lessee has the option to purchase the asset at the end of the lease term for $13,000. The lease
payment is paid annually at the beginning of the lease.
b) The equipment reverts back to the lessor at the end of the lease term and the residual value at the
end of the lease is guaranteed. The expected payment under the guarantee is $50,000. The lease
payment is paid annually at the beginning of the lease.
c) The equipment reverts back to the lessor at the end of the lease term and the residual value is not
guaranteed. The lease payment is paid annually at the beginning of the lease.
d) The residual value at the end of the lease term is now $100,000 and the lease term is only six years.
The equipment reverts back to the lessor at the end of the lease term and the residual value is not
guaranteed. The lease payment is paid annually at the beginning of the lease.
Required:
For each of the independent situations above:
a) Calculate the lease payment required by the lessor in each scenario.
b) Prepare any journal entries required for this lease on the books of Needs Deeds for the years 2017
to 2019. Assume that the first lease payment is due on the date of the lease agreement.
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Document Summary
On december 31, 2017, delta company leased equipment from thomas ltd (lessor). Consider the following independent situations: the lessee has the option to purchase the asset at the end of the lease term for ,000. Interest rate implicit in the lease (known to lessee) 8% The expected payment under the guarantee is ,000. The lease payment is paid annually at the beginning of the lease: the equipment reverts back to the lessor at the end of the lease term and the residual value is not guaranteed. The lease payment is paid annually at the beginning of the lease: the residual value at the end of the lease term is now ,000 and the lease term is only six years. The equipment reverts back to the lessor at the end of the lease term and the residual value is not guaranteed. The lease payment is paid annually at the beginning of the lease.
