Chap 16 – Finance Lease. Examples 2.

Hi Vicky
This is probably best posted in the forum “ask ACCA tutor” as I’m not sure I entirely understand the question. In terms of “Net amounts payable” under finance lease obligations these need to be split between current and non-current liabilities. This is achieved by taking the capital sum due for year 1, adding on the interest and deducting capital repayment (assuming payment in arrears). This would then give liability due at end of year one. Take the c/fwd figure into next year and recalculate implicit interest on revised balance and again deduct repayment – you then have value at end of year 2. Year 2 – Year 1 = current liability, balance is non-current liability. Take the interest payment and dep’n to SPLOCI as “finance charge” and (and deduct dep’n from Non-Current Asset on SOFP).
Obviously there’s lots of other things which could be discussed (depreciate over shorter of finance lease term and useful life – unless reasonable certainty of eventual ownership of asset in which case useful life). I’m sure something will crop up on leases in the paper – even if only a worded MCQ looking for characteristics which typify a finance lease.

Hope this has been of some use to you.

Kind Regards and Good Luck!

Chris