Question

Buffalo Corp., which uses IFRS, signs non-renewable, non-cancellable lease agreement to lease robotic equipment from Xiu Inc. The following information concerns the lease agreement. Inception date Lease term Fair value of equipment Jan. 1, 2020 Economic life of leased equipment Annual rental payments starting Jan. 1, 2020 Option to purchase at the end of the term Depreciation method Residual value Buffalo's incremental borrowing rate January 1, 2020 5 years $240,000 7 years $40,850 none Straight-line none 6% Using (1) factor tables, (2) a financial calculator, or (3) Excel functions, calculate the amount of the right-of-use asset and lease liability. (Round factor values to 5 decimal places, eg. 1.25124 and final answers to 0 decimal places, e.g. 5,275.) The amount of the right-of-use asset

Answer 1

I AB 1 Ans: 21) The amount of Right to Use Asset = $182,400 Credit 4 2) Prepre journal entries: Date Account Title & Explanation 1-Jan-20 Right To Use Asset Lease Liability (To record amount of Right to Use Asset) Debit $182,400 $182,400 00 10 3) Prepare lease amotisation schedule Date Annual Payment 1-Jan-20 1-Jan-21 1-Jan-22 1-Jan-23 1-Jan-24 $40,850 $40,850 $40,850 $40,850 $40,850 Interest on Reduction of Balance of Unpaid Lease Lease Liability Liability Liability $182,400 $0 $40,850 $141,550 $14,592 $26,258 $115,292 $10,944 $29,906 $85,386 $7,296 $33,554 $51,831 $3,648 $37,202 $14,629

AB 19 4) Prepre journal entries: Date Account Title & Explanatio 1-Jan-20 Lease liability Bank Credit Debit $40,850 $40,850 $36.480 $36,480 $14,592 $14,592 31-Dec-20 Depreciation Right To Use Asset 31-Dec-20 Interest Interest Payable 1-Jan-21 Interest Lease Liabilty Bank 31-Dec-21 Depreciation Right To Use Asset 31-Dec-21 Interest Interest Payable $14,592 $26,258 $40,850 $36,480 $36,480 $10.944 $10,944 Working Notes: Calculate depreciation value Particulars Total P.V Less: Residual value Amount $182,400 $182,400 Divide Use full life $36,480

AB No of Years DE Present value Interest Depreciation $182,400 $36,480 $145,920 $14,591.97 $36,480 $109,440 $10,943.97 $36,480 $72,960 $7,295.98 $36,480 $36,480 $3,647.99 $36,480 $547,199 $36,480 $182,400 Total Calculate present value of rent amount: Payment date Rent amount P.V Factor 1-Jan-20 1-Jan-21 1-Jan-22 1-Jan-23 1-Jan-24 40850 40850 40850 40850 40850 204250 0.94340 0.89000 0.83962 0.79209 Total P.V Present value $40.850 $38,538 $36,356 $34,298 $32,357 $182,400

A H B Ans: 1 2 1) The amount of Right to Use Asset = =E60 i Debit Credit 4 2) Prepre Date Account Title & Explanation 43831 Right To Use Asset Lease Liability (To record amount of Right to Use Asset) =E60 =D6 10 3) Prepar 11 Date Annual Payment 43831 40850 44197 40850 44562 40850 44927 40850 45292 40850 Interest on Unpaid Liability Reduction of Lease Liability Balance of Lease Liability =E60 =D46 =C13-D13 =F12-E13 =D47 =C14-D14 =F13-E14 =D48 T=C15-D15 =F14-E15 =D49 =C16-D16 =F15-E16 =D50 =C17-D17 =F16-E17

B 19 4) Prepre journal entries: Date 43831 Debit Credit Account Title & Explanation Lease liability Bank =E13 =D21 23 44196 =D43 =D24 44196 =D14 =D26 44197 Depreciation Right To Use Asset Interest Interest Payable Interest Lease Liabilty Bank Depreciation Right To Use Asset Interest Interest Payable =D14 =E14 =SUMD28:D29) 44561 1=D43 =D31 44561 =D15 33 34 35 =D33 36 Working Notes: Calculate depreciation value 37 38 Amount Particulars =D60 Less: Residual value =E60 =D39-D40 Divide Use full life =D41/D42

A No of Years Present value Interest O =E60 =C46-E46 =C47-E47 =C48-E48 =C49-E49 =SUM(C46:C50) 3 Depreciation I=D43 =D43 =D43 =D43 =D43 =SUM(E46:E50) =C47*10% =C48*10% =C49*10% =C50*10% =SUM(D46:D50) Total Calculate present value of rent amount: Payment date Rent amount 43831 40850 44197 40850 44562 |40850 44927 40850 45292 40850 =SUM(C55:C59) P.V Factor Present value =C55*D55 0.943396226415094 =C56*D56 0.88999644001424 =C57*D57 0.839619283032302 =C58*D58 0.79209366323802 =C59*D59 Total P.V =SUM(E55:E59)