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# ACC204 Accounting Management Assignment

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• Course Code: ACC204
• University: The University Of Sydney
• Country: Australia

## Question:

Deliveries Ltd leased a truck from a truck dealer, City Vans Ltd. City Vans Ltd acquired the truck at a cost of \$180 000. The truck will be painted with Deliveries Ltd's logo and advertising and the cost of repainting the truck to make it suitable for another owner four years later is estimated to be \$40 000. Deliveries Ltd plans to keep the truck after the lease but has not made any commitment to the lessor to purchase it. The terms of the lease are as follows:

• Date of entering lease: 1 July 2019.
• Duration of lease: four years.
• Life of leased asset: five years, after which it will have no residual value. Lease payments: \$ 100,000 at the end of each year.
• Interest rate implicit in the lease: 10 per cent.
• Unguaranteed residual: \$50 000.
• Fair value of truck at inception of the lease: \$351 140.

### REQUIRED

(a) Demonstrate that the interest rate implicit in the lease is 1O per cent.
(b) Prepare the journal entries to account for the lease transaction in the books of the lessor. City Vans Ltd at 1 July 2019 and 30 June 2020.
(c) Prepare the journal entries to account for the lease transaction in the books of the lessee, Deliveries Ltd, at 1 July 2019 and 30 June 2020.
(d) On 30 June 2023 Deliveries Ltd pays the residual of \$50 000 and purchases the truck. Prepare all journal entries in the books of Deliveries Ltd for 30 June 2023 in relation to the termination of the lease and the purchase of the truck.

### Question 1

 Straight Line Method 2012 2013 2014 2015 2016 2017 Cost of Truck 65000 Residual Value 5000 Depreciation 10000 10000 10000 10000 10000 10000 2012 2013 2014 2015 2016 2017 Sum of Digits method 0.286 0.238 0.190 0.143 0.095 0.048 Cost of truck 65000 n(n+1)/2 21 Depreciation 18571 15476 12381 9286 6190 3095 Declining Method 2012 2013 2014 2015 2016 2017 Cost of truck 65000 60000.0 41666.7 27777.8 18518.5 12345.7 8230.5 Residual Value 5000 Depreciation 18333.3 13888.9 9259.3 6172.8 4115.2 2743.5 Depreciation Rate 33% 2012 2013 2014 2015 2016 2017 Production Method 246000 28000 34000 42000 55000 68000 19000 0.11 0.14 0.17 0.22 0.28 0.08 Cost of truck 65000 Residual Value 5000 60000 60000 60000 60000 60000 60000 Depreciation 6829.3 8292.7 10243.9 13414.6 16585.4 4634.1

### Question 2

 Journal Entries Date Particulars Debit Credit 30th June 2018 Building 800000 To cash 800000 30th June 2018 Loss on Revaluation 100000 To Building Account 100000 30th June 2018 Accumulated Depreciation 100000 To Building Account 100000 30th June 2018 Building Account 200000 To revaluation Surplus 200000 30th June 2018 Land 1000000 To cash 1000000 30th June 2018 Land 100000 To Profit on Revaluation of Land 100000 30th June 2018 Factory Land 900000 To cash 900000 30th June 2018 Loss on Revaluation 200000 To Factory land 200000

### Part A

 Present value of the minimum lease payments 316990 Fair value 351140 Hence, it is the finance lease 90%
 Cash flows Interest rate @10% Present Value 180000 100000 0.909090909 90909.091 100000 0.826446281 82644.628 100000 0.751314801 75131.480 100000 0.683013455 68301.346 Present Value 316987

### Part B

 In the books of the Lessor Date lease Receipt Interest revenue Receivable reduction lease Receivable Balance 7/1/2019 - - - 351140 30/06/2020 100000 35114 64886 286254 30/06/2021 100000 28625.4 71374.6 214879.4 30/06/2022 100000 21487.94 78512.06 136367.34 30/06/2023 150000 13636.734 136363.266 4.074

### Journal Entries

 Date Particulars Debit Credit 7/1/2019 Lease Receivable 351140 To Sales Revenue 351140 7/1/2019 Cost of goods Sold 180000 To inventory 180000
 Date Particulars Debit Credit 30/06/2020 Cash at Bank 100000 To Interest Revenue 35114 To Lease Receivable 64886

### Part C

 In the books of the Lessee Date Payment Interest Expense Liability Reduction Lease liability Balance 7/1/2019 - - - 316990 30/06/2020 100000 31699 68301 248689 30/06/2021 100000 24868.9 75131.1 173557.9 30/06/2022 100000 17355.79 82644.21 90913.69 30/06/2023 100000 9091.369 90908.631 5.059

### Journal Entries

 Date Particulars Debit Credit 7/1/2019 Lessee's truck 351140 To Lessee’s Liability 351140 7/1/2019 Interest Expense 31699 To Leased Liability 68301 To Cash at bank 100000 30/06/2020 Depreciation Expense 63398 To Accumulated Depreciation 63398

### Journal entries

 Date Particulars Debit Credit 30/06/2023 Interest Expense 9091 To Leased Liability 90909 To Cash at bank 100000 30/06/2023 Depreciation Expense 63398 To Accumulated Depreciation 63398 30/06/2023 Truck Account 50000 To cash 50000 30/06/2023 Truck Account 316990 To Lease Truck 316990 30/06/2023 Accumulated Depreciation Leased Truck 253592 To accumulated Depreciation Truck 253592

### Part A

 For 48 weeks at normal pay rate 100000*48/52 \$ 92,307.69 For 4 weeks inclusive of loading 100000*4/52*1.175 \$   9,038.46 Total Salary and Annual leave \$101,346.15

### Following will be the entry in case the lightning Bolt Limited recognizes the annual leave obligation throughout the year.

 Particulars Debit Credit Annual Leave Expense              Dr. \$ 174.00 To provision for annual leave \$    174.00

### Part B

If Lopez was to take two weeks annual leave, keeping in mind that the tax deducted is 1200, the following journal entry will be as follows.

 Particulars Debit Credit Provision for Annual Leave \$4,519.23 To PAYG Tax Payable \$1,200.00 To Cash at Bank \$3,319.00

### Journal entry for when Lopez is on Holidays

 Particulars Debit Credit Annual Leave Expense                       Dr. \$  174.00 To provision for annual leave \$      174.00

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