Question
On 1 July 2023, Birdy Ltd decides to lease an aeroplane from Aeronautical Ltd. The term of the lease is 20 years. The implicit interest rate in the lease is 12 per cent. It is expected that the aeroplane will be scrapped at the end of the lease term. The fair value of the aeroplane at the commencement of the lease is $2 366 738. The lease is non-cancellable, returns the aeroplane to Aeronautical Ltd at the end of the lease, and requires a lease payment of $350 000 on inception of the lease (on 1 July 2023) and lease payments of $270 000 on 30 June each year (starting 30 June 2024). There is no residual payment required.
Required
(a) Provide the journal entries for the lease in the books of Birdy Ltd as at 1 July 2023 and 30 June 2024.
(b) Provide the journal entries for the lease in the books of Aeronautical Ltd as at 1 July 2023 and 30 June 2024
(c) Provide the journal entries in the books of Birdy Ltd for the final year of the lease (that is, the entries in 20 years’ time).
(d) Provide the journal entries in the books of Aeronautical Ltd for the final year of the lease (that is, the entries in 20 years’ time).
