Question

QUESTION 2 (IFRS 16) (12)
Build Ltd enters into a contract with Bull Ltd for the lease of heavy construction equipment. The duration of the lease is for one year.
Bull Ltd undertakes to insure the equipment and to maintain it by having it serviced every month. The contract stipulates that the payments are $24 000 for the year, of which $4 000 relates to the annual insurance and $7 200 relates to the provision of monthly servicing, which would normally be $10 000 per year.
Scenario1.   
The stand-alone price of the equipment is not available
Scenario 2.
The price to lease similar equipment for a year (without the insurance and additional services) in $20 000.
Required:
(a) Describe briefly the identification of the components in this lease contract in terms of IFRS16. (4)

(b) For each of Part 1 and Part 2, calculate the amount to allocate to the lease and non-lease components. (5)

(c) For part 1, provide the journal entries in the accounting records of Build Ltd. (3)

Answer 1

(a) Insurance & denuar becau ir sesuices to Build tid bonential net Keruing is a componen because Bull itd tans for seruices That l Beld ito recieves a genuices, Bill itd that it would othesuus. to undestake Itsey olpe Thexfore the contact includes hoo components a lease component (nghe use construction equipment) t a non base component I linsu pencere Sexuicing would otherwise haul o pay to another party. ake itself Amount allocited to leac.component & non lease component Insurance $24000X $food - $3076... $3/200 Besnicing - $24000X $7200 a $55.40. $31200 Non lease component- Lease componente £24000 x 20000 - $15384 $31200

hence to line bases It is a short term heas be recorded on a staight as lease expense... Lease expense Insurance Senucing Cash $15384 $ 3076 $ 5540 $26000