FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN Equipment Ltd on 1 January 2015. The lease consists of the following: Date of inception: 1/1/15 Duration of lease: 4 years Life of leased asset: 5 years Lease payments (annual): $550,000 (annual) which includes $80,000 for Maintenance and insurance costs per annum. Guaranteed residual value (Added to final payment): $190,000 Interest rate: 7% Formula for PV of $1 in n periods =1/(1+k)n Formula for present value of annuity of $1 per period for n periods = (1- (1/(1+k)n)) / k where, k is the discount rate expressed in decimal Required: a) Determine the present value of minimum lease rental payment. b) Prepare the journal entries for FRM Ltd (the Lessee) using the Net Method for the following; i. Transfer of control ii. Payment of annual payments for 2015 and 2016.
FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN Equipment Ltd on 1 January 2015. The lease consists of the following:
Date of inception: 1/1/15
Duration of lease: 4 years
Life of leased asset: 5 years
Lease payments (annual): $550,000 (annual) which includes $80,000 for Maintenance and insurance costs per annum.
Guaranteed residual value (Added to final payment): $190,000
Interest rate: 7%
Formula for PV of $1 in n periods =1/(1+k)n
Formula for present value of annuity of $1 per period for n periods = (1- (1/(1+k)n)) / k
where, k is the discount rate expressed in decimal
Required:
a) Determine the present value of minimum lease rental payment.
b) Prepare the
i. Transfer of control
ii. Payment of annual payments for 2015 and 2016.
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