On 1 July 2019, Freeway Fjord Ltd entered into an agreement with Normal Ltd under which Normal… 1 answer below »

On 1 July 2019, Freeway Fjord Ltd entered into an agreement with Normal Ltd under which Normal Ltd would lease a Fjord Festival motor vehicle supplied by Freeway Fjord Ltd. Freeway Fjord Ltd is a retailer of brand new Fjord motor vehicles and its list price of a new Fjord Festival is $40,000 “drive away” on 1 July 2019. The cost of a brand new Fjord Festival to Freeway Fjord Ltd is $30,000.

The terms of the lease demand that Normal Ltd make an up-front payment of $1,103 on 1 July 2019 followed by five annual payments of $10.000 with the first of $10,000 instalments falling due on 30 June 2020.

The lease contains punitive termination clauses that render it non-cancellable and the lease agreement stipulates that legal title in the Fjord Festival will transfer to Normal Ltd when it has made the last lease payment (due on 30 June 2024).

Normal Ltd anticipates that on 30 June 2024, the Fjord Festival will have a residual value of zero and will have no remaining useful life.

The lease has an implicit interest rate of 9% per annum.

"Is this question part of your assignment? We can help"

ORDER NOW