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Part (a) (5 Marks) Discuss whether the following scenario constitutes a lease that falls under the ambit of AASB 16/IFRS 16 Leases. Explain why or why not. Entity A enters into a contract with Entity B whereby Entity B will provide two Desna Falcon two-seater airplanes for Entity A to use over the next five years in return for $100,000 per annum paid in advance by Entity A. Initially, Entity A will select the two airplanes from a large pool of similarly sized aircraft. Entity B is under an obligation to ensure the aircraft selected remain in an airworthy condition over the next five years. Consequently, these aircraft will remain in an airport hangar owned by Entity B where they will be maintained by Entity B's staff. Ordinarily, Entity B charges $10,000 per annum to maintain a Desna Falcon in an airworthy condition. Entity B can substitute the two airplanes selected by Entity A if one or both of those airplanes' Certificate of Airworthiness is either suspended or withdrawn by the Civil Aviation Safety Authority The contract stipulates that any substitute aircraft selected by Entity B must have a current Certificate of Airworthiness. 7 A B 1 ! 0 Nc M Leases Part (b) - 20 Marks Oliver Ltd entered into a four-year lease agreement with Hardy Ltd on 1 July 2020 for an item of equipment. Oliver Ltd incurred a direct cost of $5,000 negotiating and arranging the lease prior to 1 July 2020. On 1 July 2020, Oliver Ltd paid $8,000 to enter the lease contract (direct costs). In addition, there is also an annual payment of $170,000 made in advance each year. Consequently, the first of these annual payments was made on 1 July 2020. Included in these annual payments is $20,000 representing payment to Hardy Ltd for insurance and maintenance of the equipment. Finally, there is a purchase option that Oliver Ltd will be willing to exercise at the end of the fourth year for $120,000. The equipment is expected to have a useful life of six years and a residual value of $15,000 at the end of its useful life. The interest rate implicit in the lease is 7%. This Part has 5 Questions worth 20 Marks. Answer ALL Questions. Part (b) Question (i) Determine the initial measurement of the lease liability. 4 Marks Leases Part (b) Question (ii) Determine the initial measurement of the right-of-use asset. 2 Marks 7 A- B I ili = $$ ! * Leases Part (b) Question (iii) Calculate the stream of interest expenses across the lease term. 4 Marks A B I C 2 $$ ! Leases Part (b) Question (iv) Calculate the annual amortisation on the right-of-use asset. 2 Marks 7 A B I = DO $$ ! Leases Part (b) Question (v) Provide the accounting journal entries for Oliver Ltd for the year ended 30 June 2021. 8 Marks You must show all your workings for this Question. 7 A B I E E $$ ! Enter your answers into the Journal below. Show your workings at the bottom of the Journal where provided: Date Details Debit Credit

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