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Hi Mike!
A company acquired an item of plant under a finance lease on 1 April 20X7. The present value of the minimum lease payments was $15.6 million and the rentals are $6 million per annum paid in arrears for three years on 31 March each year.
The interest rate implicit in the lease is 8% per annum.
What amount will appear under current liabilities in respect of this lease in the statement of financial position at 31 March 20X8?– The answer is $ 5,132,000
-My issue is that why only the capital for the next 12 month has been capitalised and not the interest. The interest is also payable for the next 12 month therefore should be a current liability.-Please locate where I am getting things wrong.
Thanks.
The interest is not due until the time period has passed and, as at the end of the first year, that second year’s interest has not yet accrued
Only the capital amount outstanding is a definite obligation arising as a result of a past event (signing the lease)
Interest is not yet a liability as at the first year end
OK?
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