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A has leased an item of plant under the following terms:
Commencement of lease was 1st Jan 2002
Terms of lease five years
Annual payments in advance $12,000
Cash price and fair value of the asset – $52,000 at 1st Jan 2002
Implicit interest rate within the lease (as supplied by the lessor) 8% per annum (to be apportioned on time basis where relevant)
The company’s depreciation policy for this type of plant is 20% per annum on cost (to be apportioned on time basis where relevant)
Prepare extracts of statement of comprehensive income and statement of financial position for A for the year ended 30 Sept 2003.52,000 cost less however many months depreciation at the rate of 20% based on 52,000.
F L interest is 8% x (52 – 12 ) time apportioned, and needs to be accrued.
Current liability is 12 – the accrued f l interest, long term liability is the capital outstanding at the next following year end
Is that enough?
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so the F L at 8% in this question, but whenever we do any sum will it always be accrued?
No, if fl payments are on the last day of the year, there will be no need to accrue for the interest which has rolled up and is not payable until “tomorrow”
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MikeLittle, the challenge I have been getting in these sort of questions is on the charge to current liabilities whether lease is paid in arrears or in advance. I do not understand why when dealing with arrears the interest charge payable for next year is deducted from the current liability itself yet it appears the interest rate for next year is a current liability.
Here is what I got:
Depreciation 10200
finance charge 2496
Asset 34000
current Liabilities 12000
Non current Liabilities 16704
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