| AC2101: Accounting Recognition and Measurement |
Capricorn Ltd is a company that specializes in the leasing of robots for commercial and industrial purposes.
On 2 January 20×2, Capricorn entered into a non-cancellable lease agreement to lease Libra Ltd a standard industrial robot. The lease agreement required Libra to make an annual lease payment on 31 December of each year during
the lease term. It was estimated that the economic life of the equipment would be 5 years and the residual value of the equipment at the end of the economic life would be nil. Assume that the useful life approximates the economic life of the asset.
As part of the lease agreement, Libra committed a guarantee to Capricorn that the equipment would have a value of not less than $5,000 at the end of the lease. Capricorn’s financial services division, Virgo Capital, provided a further guarantee of $55,000 for the leased equipment. In addition, Capricorn estimated that there would be an unguaranteed residual value of $2,000 at the end of the lease term.
Other agreed terms of the lease were as follows:
The implicit interest rate of the lease was 3%. Capricorn has a 31 December financial year-end and prepares its financial statements in accordance with Singapore Financial Reporting Standards.
- Determine the annual lease payments payable by Libra.
- Evaluate whether the lease agreement is an operating or finance lease from
Capricorn’s perspective. - Provide the journal entries in the books of Capricorn on 2 January 20×2 and 31
December 20×2.
The post AC2101: Accounting Recognition and Measurement Capricorn Ltd is a company that specializes in the leasing of robots for commercial and industrial purposes. On 2 January 20×2, Capricorn entered into a non-cancellable lease agreement to lease Libra Ltd a standard industrial robot. The lease agreement r appeared first on My Academic Papers.
