Ontime Couriers Ltd is an Auckland based courier deliver company. The company has experienced rapid growth in recent years and the board of directors...

Ontime Couriers Ltd is an Auckland based courier deliver company. The company has

experienced rapid growth in recent years and the board of directors is considering expanding

their fleet of vans. The CEO estimates that the company requires an additional five vans to meet

the increase in demand for their services. The board has decided that it will purchase 3 vans and

lease out the fourth from A one Finance Ltd. The following information is available for the lease

agreement:

Date of commencement of lease 1/07/2016

Lease asset Van

Lease term/duration (years) 4

Economic life of machine (years) 5

Initial up-front payment/deposit (1st Jan) 5,500 (now)

Lease payments at the end of the year (31st Dec) 8,000 (4 payments)

Lease payment contains amount for insurance & 500

maintenance

Fair value of machine on 1st Jan 17 30,329

Cost of machine 12,000

Bargain purchase option (exercisable - 30 June 2021) 750

Financial year end 30-Jun

Depreciation method SLM

Site preparation costs 2,150

Legal fees incurred by lessee 450

Required:

a. For the lessee:

i. Calculate the implicit rate of interest

ii. Calculate the cost of the right-of- use asset lease asset

iii. lease schedule clearly indicating payments, interest, principal and

outstanding lease liability.

iv. Provide the journal entries for recording the right-of- use asset lease asset and

the lease liability for the 1st of July 2016.

v. Provide the journal entries for annual lease payment for the financial year ended

30 June 2017.

vi. Calculate the annual depreciation expense.

vii. Provide snapshots of the Statement of Financial Position for the years relating to

the asset and the lease liability.

b. For the lessor:

i. Provide the journal entries for the 1st July 2016 if the lessor is a financial

institution and if the lessor is a manufacturer dealer.

ii. Provide the journal entries for receipt of the annual lease payment for the

financial year ended 30 June 2017.