Page 106 - SBR Integrated Workbook STUDENT S18-J19
P. 106
Chapter 8
Example 4
Reassessing the lease liability
On 1 May 20X2, Hazel signed a lease to use an item of machinery. The useful
economic life of the machine and the lease term were both four years. Lease
payments are due annually in advance. The lease payment for the first year
was $2 million. Lease payments increase annually by the rate of inflation over
the previous 12 months. Hazel’s rate of borrowing is 10%. The present value
of the lease payments, excluding the payment on 1 May 20X2, was $5 million.
On 1 May 20X3, inflation for the prior 12 months was 5%.
What entries should be posted to re-measure the lease liability on 1 May
20X3?
100
