Here given that

Here given that
Noncancebale lease period(year) = 10
Equal rental payment = 83,824.00
Fair value = 5,50,000.00
Unguaranteed residual value = 10,000.00
Incremental borrowing rate = 12%
Annual insurance fee = 3,088.00
Annual lease payment = =83824+3088
= 86,912.00
Calculation of lease liability
Year Lease payment PVF@12% Pv of lease payment Subsequent recognition of lease liability Subsequent Rou asset of lease liability
a b c=1/(1+.12)^a d=bc Opening balance Interest Lease payment Closing balance Opening balance Deprecation Closing balance
0 86,912.00 1 86,912.00 a b=a12% c d=a+b-c a b c=a-b
1 86,912.00 0.8929 77,600.00 5,53,221 - 86,912 4,66,309 5,53,221 55,322 4,97,899
2 86,912.00 0.7972 69,285.71 4,66,309 55,957 86,912 4,35,354 4,97,899 55,322 4,42,576
3 86,912.00 0.7118 61,862.24 4,35,354 52,242 86,912 4,00,684 4,42,576 55,322 3,87,254
4 86,912.00 0.6355 55,234.15 4,00,684 48,082 86,912 3,61,854 3,87,254 55,322 3,31,932
5 86,912.00 0.5674 49,316.20 3,61,854 43,422 86,912 3,18,365 3,31,932 55,322 2,76,610
6 86,912.00 0.5066 44,032.32 3,18,365 38,204 86,912 2,69,656 2,76,610 55,322 2,21,288
7 86,912.00 0.4523 39,314.58 2,69,656 32,359 86,912 2,15,103 2,21,288 55,322 1,65,966
8 86,912.00 0.4039 35,102.30 2,15,103 25,812 86,912 1,54,004 1,65,966 55,322 1,10,644
9 86,912.00 0.3606 31,341.34 1,54,004 18,480 86,912 85,572 1,10,644 55,322 55,322
10 10,000.00 0.3220 3,219.73 85,572 10,269 86,912 8,929 55,322 55,322 -
5,53,221 (Rounded to nearest dollar)
Annual deprecition = =553221/10
Journal entry = 55,322
Date Title and explanation Dr Cr
01-01-2020 Rou asset 5,53,221
To lease liability 5,53,221
(Being lease liability and Rou asset initially recorded)
01-01-2020 Lease liability 86,912
To Bank 86,912
(Being annual lease liability paid in the beginning)
31-12-2020 Interest 55,957
To lease liability 55,957
(Being interest expense on lease liability recorded)
31-12-2020 Deprecation 55,322
To Rou asset 55,322
(Being Deprecation on rou asset recorded)
31-12-2020 Profit and loss account 1,42,234
To Deprecation 55,322
To Interest 86,912
(Being Deprecation and interest transferred to profit and loss account)
01-01-2021 Lease liability 86,912
To Bank 86,912
(Being annual lease liability paid in the beginning)
31-12-2021 Interest 52,242
To lease liability 52,242
(Being interest expense on lease liability recorded)
31-12-2021 Deprecation 55,322
To Rou asset 55,322
(Being Deprecation on rou asset recorded)
31-12-2021 Profit and loss account 1,07,564
To Deprecation 55,322
To Interest 52,242
(Being Deprecation and interest transferred to profit and loss account)
#:b Calculation of lease liability when implicit rate is 8%
Year Lease payment PVF@8% Pv of lease payment
a b c=1/(1+.08)^a d=b*c
0 86,912.00 1.0000 86,912.00
1 86,912.00 0.9259 80,474.07
2 86,912.00 0.8573 74,513.03
3 86,912.00 0.7938 68,993.55
4 86,912.00 0.7350 63,882.91
5 86,912.00 0.6806 59,150.85
6 86,912.00 0.6302 54,769.30
7 86,912.00 0.5835 50,712.32
8 86,912.00 0.5403 46,955.85
9 86,912.00 0.5002 43,477.64
10 10,000.00 0.4632 4,631.93
Total 6,34,473 (Rounded to nearest dollar)