Abey Ltd entered into a contract with Data Pro Ltd for the lease of twenty-four laptop computers. The contract was entered into on 1 April 20x1 for a 2-year period. Each item is of low value and Abey Ltd applies the low value exemption of IFRS 16 Leases. The benefit derived for Abey Ltd from the lease agreement is constant over the lease period.
The following amounts are payable to Data Pro Ltd per the lease agreement:
• From 1/4/20x1-31/03/20x2 $2 000 per month
• From 1/4/20x2-31/03/20x3$3 000 per month
Abbey Ltd has a 31 December year-end
Required:
Prepare the journal entries for the accounting records of Abey Ltd for the year ended 31 December 20x1, 20x2 and 20x3.
Solution:
Lease payments for the year ended December 20X1 = 9 months x 2,000 = 18,000
Lease payments for the year ended December 20X2 = (3 months x 2,000) + (9 months x 3,000 = 6,000 + 27,000 = 33,000
Lease payments for the year ended December 20X1 = 3 months x 3,000 = 9,000
The journal entries are as follows:
Dr. Cr.
December 20X1 Lease liability 18,000
Cash 18,000
(To record lease payments for the year ended December 20X1)
Dr. Cr.
December 20X2 Lease liability 33,000
Cash 33,000
(To record lease payments for the year ended December 20X2)
Dr. Cr.
December 20X3 Lease liability 9,000
Cash 9,000
(To record lease payments for the year ended December 20X3)
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