Anonymous
18 hours ago
A company leases equipment with a fair value of $50,000 for 5 years, paying $12,000 annually. Determine the accounting entries for the lease under IFRS 16.
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ChatGPT
18 hours ago
Under IFRS 16, a lease is recognized as a right-of-use asset and a lease liability on the balance sheet. The accounting entries for the lease would be as follows:
1. At the commencement of the lease:
- Debit Right-of-use asset $50,000
- Credit Lease liability $50,000
2. At the end of the first year:
- Debit Lease expense $12,000
- Credit Cash $12,000
- Debit Interest expense (calculated using the effective interest rate method)
- Credit Lease liability (principal portion of the payment)
3. At the end of each subsequent year:
- Debit Lease expense $12,000
- Credit Cash $12,000
- Debit Interest expense
- Credit Lease liability
4. At the end of the lease term (5 years):
- Debit Lease liability $50,000
- Credit Right-of-use asset $50,000
These entries reflect the recognition of the lease liability and right-of-use asset on the balance sheet, as well as the annual lease expense and interest expense on the income statement.
1. At the commencement of the lease:
- Debit Right-of-use asset $50,000
- Credit Lease liability $50,000
2. At the end of the first year:
- Debit Lease expense $12,000
- Credit Cash $12,000
- Debit Interest expense (calculated using the effective interest rate method)
- Credit Lease liability (principal portion of the payment)
3. At the end of each subsequent year:
- Debit Lease expense $12,000
- Credit Cash $12,000
- Debit Interest expense
- Credit Lease liability
4. At the end of the lease term (5 years):
- Debit Lease liability $50,000
- Credit Right-of-use asset $50,000
These entries reflect the recognition of the lease liability and right-of-use asset on the balance sheet, as well as the annual lease expense and interest expense on the income statement.
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Google Gemini AI
18 hours ago
Initial Recognition:
Dr. Right-of-use asset: $50,000
Cr. Lease liability: $50,000
Lease Payments:
At the end of each year, the company will record the lease payment and reduce the lease liability accordingly. The interest expense is calculated as the lease liability multiplied by the effective interest rate.
Dr. Lease expense: $12,000
Dr. Interest expense: (Lease liability x Effective interest rate)
Cr. Lease liability: $12,000
Assuming an effective interest rate of 6%, the interest expense in the first year is:
Interest expense: $50,000 x 0.06 = $3,000
The lease expense for the first year is:
Lease expense: $12,000 + $3,000 = $15,000
The entries for the first three years are as follows:
Year 1:
Dr. Lease expense: $15,000
Dr. Interest expense: $3,000
Cr. Lease liability: $12,000
Year 2:
Dr. Lease expense: $15,000
Dr. Interest expense: $2,700
Cr. Lease liability: $12,000
Year 3:
Dr. Lease expense: $15,000
Dr. Interest expense: $2,400
Cr. Lease liability: $12,000
Note: The effective interest rate is typically determined based on the lessee's incremental borrowing rate or a benchmark interest rate. The lease term is the non-cancelable period of the lease, which is typically the period over which the lessee is obligated to make lease payments.
Dr. Right-of-use asset: $50,000
Cr. Lease liability: $50,000
Lease Payments:
At the end of each year, the company will record the lease payment and reduce the lease liability accordingly. The interest expense is calculated as the lease liability multiplied by the effective interest rate.
Dr. Lease expense: $12,000
Dr. Interest expense: (Lease liability x Effective interest rate)
Cr. Lease liability: $12,000
Assuming an effective interest rate of 6%, the interest expense in the first year is:
Interest expense: $50,000 x 0.06 = $3,000
The lease expense for the first year is:
Lease expense: $12,000 + $3,000 = $15,000
The entries for the first three years are as follows:
Year 1:
Dr. Lease expense: $15,000
Dr. Interest expense: $3,000
Cr. Lease liability: $12,000
Year 2:
Dr. Lease expense: $15,000
Dr. Interest expense: $2,700
Cr. Lease liability: $12,000
Year 3:
Dr. Lease expense: $15,000
Dr. Interest expense: $2,400
Cr. Lease liability: $12,000
Note: The effective interest rate is typically determined based on the lessee's incremental borrowing rate or a benchmark interest rate. The lease term is the non-cancelable period of the lease, which is typically the period over which the lessee is obligated to make lease payments.
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