I am having problems understanding this part of the question
in the Trial balance
Plant on lease to customer at cost (see note below) 56000
Rental income from plant (see note below) 16000
On 1 October 2003 Chamberlain purchased an item of plant for $56million which it lease to a customer on the same date. The Lease period is four years with annual rentals of $16million in advance. The plant is expected to have a nil residual value at the end of the four years. Chamberlain has been advised that this is a finance lease with an interest rate of 10% per annum.
The problem I am having is that I work it out Chamberlain as follow
I treated the $4000 as finance cost in the Profit and loss and apply $30800 as a non current liability and $13200 (44000-30800) as current liability in the balance sheet.
However the answer for the question treated the $4000 as investment income in the I/S. and in the B/S- Net investment in finance lease – 40,000 and Accrued finance lease income 4,000 under CURRENT ASSET
I AM CONFUSE WITH WHY THEY TREATED THE $4000 AS INCOME AND INCLUDED THE ABOVE FIGURES UNDER CURRENT ASSET AND NOT A LIABILITY.
Can anyone please help me understand this question.
Yes, Chamberlain is the lessor, not the lessee! This is the mirror image of the “normal” lease question which is usually seen from the perspective of the one using the asset – the lessee.
You must be logged in to reply to this topic.