RS Company has entered into a contract to obtain the machinery on lease from Soneri leasing Company on 1st July 2009. Fair value of the asset is Rs. 950,000; Lease rentals are 5 annual installments of Rs. 219,450 starting from 30th June 2010.
The implicit interest rate is approximately 5% per annum in this lease contract. Depreciation is charged on written down method at 20%.
1) Show how this lease would be presented in the accounts of the lessee (lease amortization schedule) for entire lease term.
2) Show journal entries that are to be recorded in the books of lessee for the financial year 2009 to 2010.
3) Also mention the charges that have to be disclosed in income statement for the year ended June 30th 2010 and for the year ended June 30th2011, in the books of lessee.