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- November 23, 2010 at 9:42 am #46160
https://www.accaglobal.com/students/student_accountant/archive/2010/112/3366323
Above is the lastest lease article published on ACCA global website. I wonder why ACCA added lots of contents to F7 for this sitting. Will these be the focus for Dec 2010?
From the example 4 given :
Example 4 – Operating lease treatment
On 1 October 2009 Alpine Ltd entered into an agreement to lease a
machine that had an estimated life of 10 years. The lease period is for
four years with annual rentals of $5,000 payable in advance from
1 October 2009. The machine is expected to have a nil residual value at
the end of its life. The machine had a fair value of $50,000 at the
inception of the lease.
How should the lease be accounted for in the financial statements of
Alpine for the year end 31 March 2010?The answer given is :
The accounting for this lease should therefore be relatively
straightforward and is shown below:
Rental of $5,000 paid on 1 October:
Dr Lease expense (income statement) 5,000
Cr Bank 5,000
This rental however spans the lease period 1 October 2009 to 30
September 2010 and therefore $2,500 (the last six-months’ rental) has
been prepaid at the year end 31 March 2010.
Dr Prepayments 2,500
Cr Lease expense 2,500Income statement ext ract
Lease expense 2,500
Statement of f inancial posi t ion ext ract
Current assets:
Prepayments 2,500My question is – is the answer correct? Shouldn’t it be
Dr: prepayment 2500
Dr: Interest expense 2500
Cr: Bank 5000thanks!
November 24, 2010 at 6:57 pm #71258Is that not exactly the same as the answer given?!!!!!!
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