On 1 July 2017, Harry Ltd leased a crane from Potter Ltd. The crane cost Potter Ltd $89,027, considered to be its fair value on that same day. The finance lease agreement contained the following provisions.
|The lease term is for 3 years, starting on ||1 July 2017|
|The lease is non-cancellable|
|Annual lease payment, payable on 30 June each year||$29,000|
|Estimated useful life of crane||4 years|
|Estimated residual value of crane at end of lease term||$16,000|
|Residual value guaranteed by Harry Ltd||$12,000|
|Interest rate implicit in the lease||7%|
The lease was classified as a finance lease by both Harry Ltd and Potter Ltd at 1 July 2017.
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