On 1 January 2019, Walkinson Ltd entered into a 6-year

On 1 January 2019, Walkinson Ltd entered into a 6-year contract to lease a crane for its freight terminal. When negotiating the lease contract, on 1 January 2019, Walkinson Ltd paid direct costs of $20,000 for technical advice from an engineering consultancy.

The lease contract requires Walkinson Ltd to make 6 annual lease payments of $60,000, commencing on 30 June 2019. The lease contract includes a bargain purchase option, (which Walkinson Ltd is expected to exercise), to purchase the crane for $15,000 at the end of the lease contract.

The crane is expected to have useful life of 8 years, after which it is expected to have $10,000 salvage value.

The implicit interest rate in the lease contract is 11% per annum. The relevant present values are:

Interest Rate

Present Value of $1 in 6 years

Present Value of an annuity of $1 for 6 years

11%

0.5347

4.2305

REQUIRED:

  1. Determine the amounts of the lease liability and the right-to-use asset at 1 January 2019 for Walkinson Ltd, in accordance with AASB 16 Leases.

  1. Prepare a schedule of lease payments for Walkinson Ltd for the financial years ending 31 December 2019, 31 December 2020, 31 December 2021, 31 December 2022, 31 December 2023, 31 December 2024 showing lease payments, interest expense, principal reduction, and outstanding lease liability.

  1. Provide the journal entries for Walkinson Ltd relating to the lease contract for the financial year ending 31 December 2019, in accordance with AASB16 Leases.

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