On 1 July 2011, Gery mouth Ltd leased a photocopier from Stewart Ltd, a company manufacturing, retails and leases copiers. The photocopier had cost Stewart Ltd $30,000 to make but had a fair value on 1 July 2011 of $35,080. The lease Agreement contained the following provisions:
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Lease term
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2 years
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Annual payment, in advance on 1 July each year
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$14,500
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Residual value at end of the lease term
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$3,000
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Residual guaranteed by lessee
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Nil
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Interest rate implicit in lease
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10%
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Economic life of the copier
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3 years
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The lease is cancellable only with the permission of the lessor.
The annual payment included an amount of $2500 p.a. to reimburse Stewart Ltd for the cost of paper and toner supplied to Greymouth Ltd.
1. Classify the lease for both the lessor and lessee. Justify your answer.
2. Prepare the FV of MLP (Minimum lease payment).
3. Prepare, for the Lessee: the lease payment schedule.