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Hey sir, I hope I haven’t annoyed you with my questions, i promise this is the last one.
Thank you so much sir <3 !On 1 October 2013, Fresco acquired an item of plant under a five-year finance lease agreement. The plant had a
cash purchase cost of $25 million. The agreement had an implicit finance cost of 10% per annum and required an
immediate deposit of $2 million and annual rentals of $6 million paid on 30 September each year for five years.
What would be the current liability for the leased plant in Fresco’s statement of financial position as at
30 September 2014?
A $19,300,000
B $4,070,000
C $5,000,000
D $3,850,000The answer is D , I know how the answer is calculated and everything but the only thing that confuses me is why the initial immediate deposit of $2 million which is added to the amount as it is a direct cost, is deducted right after its added and the interest is then calculated on 25000 and not 27000?
I think i realised my mistake. Is it because its asking for liability and we dont include direct costs in liability for leases right? So it adds the direct cost in the beginning to classify it as a right of use asset and then removes it to make a lease liability?
@coldpillow said:
I think i realised my mistake. Is it because its asking for liability and we dont include direct costs in liability for leases right? So it adds the direct cost in the beginning to classify it as a right of use asset and then removes it to make a lease liability?Correct!
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