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Operating lease or Finance lease? Need your help
04-01-2009, 08:12 PM,
#1
Operating lease or Finance lease? Need your help
Purple Ltd has entered into an agreement to lease a D9 bulldozer to Lemon Ltd. The lease agreement details are as follows

Length of lease 5 years
Commencement date 1 July 2008
Annual lease payment, payable 30 June
each year commencing 30 June 2009 $8,000
Fair value of the bulldozer at 1 July 2008 $34,797
Estimated economic life of the bulldozer 8 years
Estimated residual value of the plant at the end
of its economic life $2,000
Residual value at the end of the lease term,
Of which 50% is guaranteed by Lemon Ltd $7,200
Interest rate implicit in the lease 9%

The lease is cancellable, but a penalty equal to 50% of the total lease payment is payable on cancellation. Lemon Ltd does not intend to buy the bulldozer at the end of the lease term. Purple Ltd incurred $1,000 to negotiate and execute the lease agreement. Purple Ltd purchased the bulldozer for $34,797 just before the inception of the lease.

Required

A. State how both companies should classify the lease. Give reasons for your answer. (1.5 Marks)
Please help me |

I think it operating lease because of it's cancellable with limited cost. It means that there is a limited risks . Then it must be opearating !
Reply


Messages In This Thread
Operating lease or Finance lease? Need your help - by huu_tung87 - 04-01-2009, 08:12 PM
[No subject] - by kamranACA - 04-01-2009, 08:40 PM
[No subject] - by Star - 04-02-2009, 05:53 PM
[No subject] - by huu_tung87 - 04-02-2009, 06:24 PM
[No subject] - by Star - 04-02-2009, 07:39 PM
[No subject] - by huu_tung87 - 04-02-2009, 07:55 PM
[No subject] - by Star - 04-02-2009, 08:12 PM
[No subject] - by kamranACA - 04-03-2009, 01:51 AM
[No subject] - by NYP - 04-25-2009, 02:19 PM
[No subject] - by Star - 04-25-2009, 06:26 PM
[No subject] - by NYP - 04-25-2009, 07:04 PM
[No subject] - by Star - 04-27-2009, 02:40 PM
[No subject] - by Abdur.Rehman - 04-29-2009, 07:05 AM
[No subject] - by wsafca1 - 08-12-2009, 01:35 AM
[No subject] - by wsafca - 08-13-2009, 04:35 AM
[No subject] - by kamranACA - 08-13-2009, 07:44 PM
[No subject] - by wsafca - 08-14-2009, 02:14 AM
[No subject] - by kamranACA - 08-14-2009, 03:16 AM
[No subject] - by wsafca - 08-14-2009, 05:47 PM
[No subject] - by faisal_desperado - 08-15-2009, 01:06 AM
[No subject] - by kamranACA - 08-15-2009, 03:13 AM
[No subject] - by wsafca - 08-15-2009, 05:00 PM
[No subject] - by wsafca - 08-15-2009, 05:04 PM
[No subject] - by wsafca - 08-15-2009, 05:55 PM
[No subject] - by kamranACA - 08-15-2009, 06:08 PM
[No subject] - by kamranACA - 08-15-2009, 06:10 PM
[No subject] - by wsafca - 08-15-2009, 06:29 PM
[No subject] - by kamranACA - 08-15-2009, 06:48 PM
[No subject] - by faisal_desperado - 08-15-2009, 07:11 PM
[No subject] - by kamranACA - 08-15-2009, 07:26 PM
[No subject] - by wsafca - 08-15-2009, 10:31 PM
[No subject] - by kamranACA - 08-15-2009, 11:42 PM
[No subject] - by wsafca - 08-16-2009, 05:01 PM
[No subject] - by wsafca - 08-16-2009, 05:20 PM
[No subject] - by wsafca - 08-16-2009, 05:36 PM
[No subject] - by kamranACA - 08-16-2009, 09:00 PM
[No subject] - by wsafca - 08-16-2009, 11:19 PM
[No subject] - by kamranACA - 08-17-2009, 01:24 AM
[No subject] - by wsafca - 08-18-2009, 01:24 AM
[No subject] - by kamranACA - 08-18-2009, 05:20 AM
[No subject] - by wsafca - 08-19-2009, 12:16 AM
[No subject] - by kamranACA - 08-19-2009, 03:33 AM
[No subject] - by kamranACA - 08-19-2009, 03:37 AM
[No subject] - by applejo88 - 03-17-2011, 07:16 PM

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