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Extracts from Deltoid Co’s statements of financial position are as follows:
STATEMENTOF FINANCIALPOSITIONAS AT 31 MARCH
20X1 20X0
$’000 $’000
Non-current assets
Property, plant and equipment
Right-of-use asset 6,500 2,500Non-current liabilities
Lease liability 4,800 2,000Current liabilities
Lease liability 1,700 800Right-of-use assets are initially measured equal to the initial amount of the lease liability, other than to correctly account for direct costs of $50,000 which were incurred on the arrangement of new lease contracts. During the year to 31 March 20X1 depreciation charged on right-of-use assets was $1,800,000.
What amount will be shown in the statement of cash flows of Deltoid Co for the year
ended 31 March 20X1 in respect of payments made under leases?Answer: $2,100,000
But I am not able to understand the working process shown in the answer, kindly help please!OK, I won’t give you the instant answer as I want you to think it through and get it right. Firstly, ignore the 50,000 as that has been dealt with in the cost of the ROU asset correctly. Secondly, you need to understand what we are trying to calculate, which is the lease payment in the year. Where will be get this from? This will be the lease liability T-account.
When you construct the lease liability T-account as well as the payment being part of the movement, there will also be movement due to any new leases taken out (DR ROU CR Lease Liability). So, what I’d like you to do now is work out the new leases taken out by constructing a ROU T-account. Give it a go and see how you get on.
Thanks
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