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Rose Ltd enters into a lease of office equipment for five years. The total value of the equipment when new is $5000. The lease payments are payable...

Rose Ltd enters into a lease of office equipment for five years. The total value of the equipment

when new is $5000. The lease payments are payable on 30 June each year. The first lease

payment of $1 500 is payable at commencement of the lease on 30 June 2019. The remaining

lease payments are $1 400 in years 2 and 3 and $1 500 in years 4 and 5. In addition to the

payments, the lessor provides a lease incentive with a value of $600 at the commencement of

the lease. The benefits to the lessee under the lease are expected to arise on a straight-line

basis over the term of the lease.

(a) How should Rose Ltd account for this lease transaction?

(b) Prepare the general journal entries in the books of Rose Ltd

Top Answer

In the books of lessee that is lessee: No entry will be made at the inception of the lease as this is an operating lease.... View the full answer

2 comments
  • Thanks for your answer! Just wondering how you knew it was an operating lease? If you could explain that in detail that would be awesome :)
    • khemraj.kharel27
    • Apr 04, 2018 at 2:25am
  • Also for part b, the question did mention that we needed to use AASB 16 model, would that change the answer you have above?
    • khemraj.kharel27
    • Apr 04, 2018 at 2:36am

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