Interest rate implicit in the lease 6.

943%
First year discount variable 106.94%

Discount Discounted
Years Amounts
variable amounts
What are the journals recorded on initial recognition for The System Group? 
Minimum lease payments 1 20,000 1.0694 18,702 DR Lease receivables € 100,000
2 20,000 1.1437 17,487 CR Property, plant and equipment € 100,000
3 20,000 1.2231 16,352 To record the net investment in the lease
4 20,000 1.3080 15,290
5 20,000 1.3988 14,298

Unguaranteed residual amount 5 25,000 1.3988 17,872

Total discounted amount/ net investment in the lease 100,000

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 Interest rate
implicit in the
lease
6.943%
Period Debtor Interest Lease Payments Closing debtor
Year 1 100,000 6,943 20,000 86,943
Year 2 86,943 6,037 20,000 72,980
Year 3 72,980 5,068 20,000 58,048
Year 4 58,048 4,030 20,000 42,079
Year 5 42,079 2,922 20,000 25,000

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 Principal repaid What are the journals recorded at the end of Year 1 for The System Group?
13,057 DR. Cash 20,000
13,963 CR. Lease receivable 13,057
14,932 CR. Finance Income 6,943
15,970 To record the receipt of a lease payment and the allocation of the principal and in
17,078

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 he System Group? 

ation of the principal and interest repaid

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