ifrs 16

Hello Chris,

Need your help to tackle a question on leases.

Jetsam Co entered into a lease for an item of plant on 1 April 20X0 which required payments of $15,000 to be made annually in arrears. The present value of the lease payments was estimated to be $100,650 at the inception of the lease and the rate of interest implicit in the lease was 8%. Both the lease term and the plant’s estimated useful life was ten years.

What is the total amount that should be charged to profit or loss for the right-of-use asset
for the year ended 31 December 20X0?
A $11,250
B $6,039
C $7,549
D $13,588

1. The answer is D.

2. The working is as follows:
Depreciation for the year: 100,650/10 = 10,065
Finance cost for the year: 100,650 x 8% = $8,052
Total charge for the year: 10,650 + 8,052 = $18,702
1 April – 31 December 20X0 = 9 mths so 9/12 x $18,702 = $13,588

3. My issue is that why finance cost has been included in the calculation?
– In the question, it says “charged to profit or loss for the right-of-use asset”, and not any charge to P/L in respect to lease liability.

4. Please clarify this.

Thanks in advance.