Page 150 - F2 Integrated Workbook STUDENT 2019
P. 150
Chapter 6
Example 6.2
Greasy entered into a five year lease on 1 January 20X0 for a machine. The
lease contract requires an initial deposit of $500,000 and an annual payment of
$1,000,000 starting on 31 December 20X0. Lease arrangement fees incurred
by Greasy were $50,000. Restoration costs of $65,000 were expected to be
incurred at the end of the lease term.
The machine has a useful economic life of five years.
Required
(i) Prepare extracts from Greasy’s financial statements for the year
ended 31 December 20X0 showing the impact of the lease
arrangement. The interest implicit in the lease is 8%.
(ii) Prepare the same extracts now assuming that the lease repayments
were paid in advance (on 1 January each year). The interest implicit
in the lease is 13%.
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