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Greetings dear sir,
On 1 April 2011, Fresco acquired an item of plant under a finance lease agreement that had an implicit finance cost of 10% per annum. The lease payments in the trial balance represent an initial deposit of $2 million paid on 1 April 2011 and the first annual rental of $6 million paid on 31 March 2012. The lease agreement requires further annual payments of $6 million on 31 March each year for the next four years. Had the plant not been leased it would have cost $25 million to purchase for cash.Why they did not use 6m* 5=30mil/1.10 = 27272.7272 to calculate pv value of lease liability
Instead they used FV-initial deposits
I understand why initial deposits are deducted but why not use pv?Sorry sir small mistake in posting question.
That mistake is 6000*3.791 (annuity factory 5yrs @10%)=22,746
Why not use this amount?
Why they used 23000 in calculating lease liability?
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