Ivanhoe Ltd., a public company following IFRS 16, recorded a right-of-use asset
ID: 2552267 • Letter: I
Question
Ivanhoe Ltd., a public company following IFRS 16, recorded a right-of-use asset and lease liability at $159,600 on May 1, 2017. The interest rate is 12%. Ivanhoe made the first lease payment of $31,224 on May 1, 2017. The lease requires a total of 7 annual payments. The equipment has a useful life of 7 years with no residual value. Assume that at December 31, 2017, Ivanhoe made an adjusting entry to accrue interest expense of $10,270 on the lease.
Prepare Ivanhoe’s May 1, 2018 journal entry to record the second lease payment of $31,224. Assume that no reversing entries are made.
Explanation / Answer
Journal Entry:-
Date : May 1 2017
1.) Asset(Right of Use) A/c Dr. $ 159,600
To Lease Liability A/c $ 159,600
2.) Lease Liability A/c Dr. $ 31,224
To Bank A/c $ 31,224
Date :- December 31, 2017
3.) Interest A/c Dr. $ 10,270 [(159,600-31,224)*12%*8/12]
To Interest Payable A/c $ 10,270
4.) Statement of Profit & Loss A/c Dr. $ 10,270
To Interest A/c $ 10,270
Date : May 1 2018
5.) Lease Liability A/c Dr. $ 31,224
To Bank A/c $ 31,224
6.) Interest A/c Dr. $ 5,135
Interest Payable A/c Dr. $ 10,270
To Bank A/c $ 15,405
7.) Statement of Profit & Loss A/c Dr. $ 5,135
To Interest A/c $ 5,135
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