Question & Answer: The following are the provisions of the lease agreement: The fair value of the computerized point of sale system is $179,051 at 30 June 2017. The lease term is for 4…..

PRACTICAL QUESTION (27 marks) Organic Fashion Ltd enters into a 4-year non-cancellable lease agreement starting on 30/6/2017. The following are the provisions of the lease agreement: The fair value of the computerized point of sale system is $179,051 at 30 June 2017 The lease term is for 4 years. payments of $48,000 on 30 June 2018, 2019, and 2020. The contract specifies that Organic Fashion Ltd specifies a bargain purchase option of The annual lease payments are made in advance with $48,000 due immediately and annual · $10,000 at the end of the lease term on 30 June 2021. The interest rate implicit in the lease is 8%. · The assets residual value at the end of its 4-year effective useful life is nil Note: Round all workings to whole numbers. Discount factors should be displayed with four decimal places. Pro forma schedules for your answers are provided below. i. Can this agreement be considered a lease under AASB 16? (2 marks) Answer

The following are the provisions of the lease agreement: The fair value of the computerized point of sale system is $179,051 at 30 June 2017. The lease term is for 4 years. The annual lease payments are made in advance with $48,000 due immediately and annual payments of $48,000 on 30 June 2018, 2019, and 2020. The contract specifies that Organic Fashion Ltd specifies a bargain purchase option of $10,000 at the end of the lease term on 30 June 2021. The interest rate implicit in the lease is 8%. The asset’s residual value at the end of its 4-year effective useful life is nil. Pro forma schedules for your answers are provided below. i. Can this agreement be considered a lease under AASB16? Answer:

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Question & Answer: The following are the provisions of the lease agreement: The fair value of the computerized point of sale system is $179,051 at 30 June 2017. The lease term is for 4…..
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Yes this will be considered as lease under AASB 16
As per AASB 16 if a contract conveys the right to control the asset for the span of time in exchange for consideration.Than a financial lease is a lease that transfers all the rewards and risk incidental to the ownership underlaying that asset
Conditions to be fulfilled for Financial lease individually or in combination:
1) The lessee has option to purchase asset at a price which is lower than the fair value of asset at the date when option becomes exercisable.
2) The lease term is for majopr part of the economic life of the asset
3) At the date of inception the PV of lease payments amount to at least all the of the fair value of assets.
4) The lease transfers the ownership of assets to the lessee by the end of lease term
So in the present scenerio lease is for 4 years which is also the effective life of the underlying asset
2) The lease gives option to lessor to purchase the asset at the end of lease term.
3) It involves lease payments for each of the four years.
Hence thes will be identified as financial lease under AASB 16

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