Assume that on 01 January 2015, Pecking Duck ltd sells a computer system to Liquidity Finance Co Ltd For Kshs. 510,000 and immediately leases the computer system back. The relevant information is as follows; 1. 111. iv. V. vi. The computer system was carried on Peking books at a value of Kshs. 450,000 The term of the non cancelleable lease if for 10 years. The lease agreement requires equal lease rental of 83,000.11 at the end of each year. The incremental borrowing rate for pecking is 12%, Pecking is aware of Liquidity Finance co's annual rental to ensure a rate of return of 10%. The computer system had a fair value of Kshs.510,000 on 01 January 2015 and an estimated economic life of 10 year. Pecking pays executory costs of 9,000 per year. Required Prepare the journal entries for both the lessee and lessor for 2015 to reflect the sale and lease back transaction.

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Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.