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ACCA F7 IAS 17 Leases Example 1
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Hi Mike. Since the examples can no longer be found in the lecture notes, does that mean these examples are no longer relevant to the 2018 exam?
No, but the emphasis is now heavily on appreciating what is a finance lease under IFRS 16
If you are able to appreciate the calculations of current and long-term liabilities under a finance lease, that should be sufficient for your purposes
A complete new suite of lectures is at this moment in the course of preparation
NB this question would have been more appropriately posted in the Ask ACCA Tutor forum!
OK?
when are the lectures going to be available sir?
Will only theory questions be more important sir for the forthcoming exams?
or should we refer to the lectures of leases available in the P2 section of the same ?
No, we are not confined to just theory questions. But it is important to be able to identify what qualifies as a lease … and therefore also what doesn’t qualify as a lease
By all means watch Chris’s P2 lectures
Sorry where can I find this example?
You can’t! With the removal of IAS 17 and the introduction of IFRS 16, all the previous examples of leases have been removed – they no longer apply under the new “rules”
Ok?
im applying for f7 int his dec, is it not applicable onme?
i am confused
The new IFRS is the one that is relevant to you. The course notes are well up to date even though I need to re-record the lectures
OK?
Hi Mike,
Example 1, Posting #3 (Depreciation)… Why are we posting $2,500, when the fair value is $17,500 (this is the obligation credit) and a deposit of $460 was paid on the same day (this is the debit on the obligation).
I would think that the deprecation to be charged using straight line on 7 years would be…17,500 – 460 = 17,040… 17,040 / 7 = $2,434… this way we ensure that the balance on the obligation account at the end of the 7 years is zero… Otherwise there would be some over depreciation on year 7…
Would the above treatment be correct?
Thank you for your lectures and for replying to my questions.
If you buy a car and arrange to pay a deposit and the balance over 4 years, how much has the car cost you?
That deposit is a reduction of the obligation … it’s not a reduction of the value of the car
So the obligation is matched over time by the payments made (adjusted for the interest) whereas the asset of the machine is matched over time by the depreciation charged on the machine
Remember, we’re not depreciating the obligation, we’re depreciating the asset’s fair value over the shorter of useful life and lease term
OK?
Why cant I subtract 3500 before adding 10%? Because some questions in the kit requires that..How wld I knw when to?.
Ur respond wld be highly appreciated.
The answer to this is that it depends on whether the first instalment is paid “in advance” or “in arrears”
If it’s paid in advance, ie on the date that the lease is signed, the effect is to reduce the amount of money “borrowed” under the lease
Imagine taking a $50,000 mortgage to buy an apartment and, upon signing the mortgage agreement, interest starts to accrue on the amount outstanding
But, immediately after signing that mortgage agreement, you pay $4,000 to the mortgage lender
So, from day 1, interest will be calculated on $46,000 until you make the next payment
Using the same figures but making that $4,000 instalment payment after 1 year, interest will be calculated on $50,000 and then you pay the first amount of $4,000
Is that better for you?