On 1 July 2017, Fantastic Ltd entered into a lease agreement
Question 4 – Accounting for leases On 1 July 2017, Fantastic Ltd entered into a lease agreement with Green Power Ltd, agreeing to lease a truck from Green Power Ltd for three years. Details of the lease are as follows: Fair value of truck at inception of lease $188,995 Residual value at end of lease term $50,000 Residual value guaranteed by lessee $20,000 Annual payments (1st payment due on 30 June 2018) $60,000 Interest rate implicit in the lease 6% The annual lease payments of $60,000 include reimbursement of insurance and maintenance costs of $5,000. The lease is cancellable, but cancellation will incur a monetary penalty equivalent to 2 years’ lease payments. The estimated useful life…
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