If the office equipment needs to be serviced or repaired, A Ltd is required to substitute an office equipment of the same type. Otherwise, and other than on default by B Ltd, A Ltd cannot retrieve the equipment during the six-year period. B intends to buy the office equipment from the lessor at the end of the lease term.
a)Determine whether a lease exists according to AASB16 Leases.
b)Describe four disadvantages of B Ltd for entering into this lease agreement.
c)Prepare a schedule of lease payments for B Ltd for the 6 years’ length of lease.
d)Prepare all journal entries to record the relevant transactions on in the records of B Ltd.
Discuss how your solution in Part A would differ if, instead of a guaranteed residual value, the contract contains a:
a)Bargain purchase option
Explain the new single accounting model for lessees and the implications of this change on:
a)External users of financial reports
b)Statement of Financial Position (Balance Sheet)
c)Management contracts tied to key performance indicators such as return on assets