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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.
 

Answer:

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

 
 

Question 3

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

Part D

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

Question 4

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

OR

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