Can you tell me which method resulting in correct treatment of current and non current lease liability. I know that the method 1 is prescribed by the book but it seems very unreal, especially with long term lease, where the current portion is very small compared to the non current component. While in method 2, the cashflow from the year end onwards is discounted to year end, and the current part is the cash paid in next year discounted to current year end, seems more appropriate?

the value of the right of use asset is stated in the BPP book as the PV of the lease payments not paid at commencement date + payments made before the commencement date+ direct costs. In the above example, do we assume that the minimum lease payments of $22730 includes the first payment of $5000. I’m a little unsure about the treatment of the same to find out the value of the right of use of asset.

the corrected question is, the BPP text adds on the initial payment to the right of use asset value and does not subtract the initial cash paid in the lease liability computation. Just wondering if the difference in accounting treatment is correct or not.

Further presentation form confusssed becaused here stated gross then deducted but BPP example start with net figure as exactly match the wordinv of ‘the lease lisbility is initially measured at the present value ov lease payments not paid at the commencement date’

The ? does not say there is an initial/commencement payment of $5,000 plus 5 payments of $5,000 each. Five payments are required and the first payment starts now 1-1-2015. The $22,730 PV given includes the now required $5,000 and the other 4 payments of $5,000 each. As such, the R of U Asset & Lease Liability do agree at the start of the day (1-1-2015) at $22,730 before the first payment of $5,000 is due and paid at the end of the same day (1-1-2015). This, then, lines up with BPP. Hope this helps.

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nhatminh2810 says

Hi sir, I have a question:

For example:

Instalment 10000

rate 5%

term 5 yrs

paid in arrea

OB Interest Instalment CB discount at CB

1 43,295 2,165 10,000 35,460

2 35,460 1,773 10,000 27,232 9,524

3 27,232 1,362 10,000 18,594 9,070

4 18,594 930 10,000 9,524 8,638

5 9,524 476 10,000 – 8,227

method 1:

CL 8,227

NCL 27,232

method 2:

CL 9,524

NCL 25,936

Can you tell me which method resulting in correct treatment of current and non current lease liability. I know that the method 1 is prescribed by the book but it seems very unreal, especially with long term lease, where the current portion is very small compared to the non current component. While in method 2, the cashflow from the year end onwards is discounted to year end, and the current part is the cash paid in next year discounted to current year end, seems more appropriate?

Thanks.

shah369 says

Hi, how did you get 3.546 AF?

MichaelReidy says

Annuity Tables

kanyinsolaonafuye says

you can also use this formula (1-(1+r)^-n)/n

kanyinsolaonafuye says

sorry (1-(1+r)^-n)/r

tommyboy0928 says

I’m having the same question

Shouldn’t we deduct the initial payment of $5,000 from the initial present value of lease payment of $22,730?

nidhi27 says

Hello,

the value of the right of use asset is stated in the BPP book as the PV of the lease payments not paid at commencement date + payments made before the commencement date+ direct costs. In the above example, do we assume that the minimum lease payments of $22730 includes the first payment of $5000. I’m a little unsure about the treatment of the same to find out the value of the right of use of asset.

Thank you,

Nidhi

nidhi27 says

I’m sorry I re-read the text.

the corrected question is, the BPP text adds on the initial payment to the right of use asset value and does not subtract the initial cash paid in the lease liability computation. Just wondering if the difference in accounting treatment is correct or not.

Thanks,

Nidhi

ajithsk says

Ya,i too havd same confution ..think BPP example is the correct way snd this example presentation form shall ignore..

ajithsk says

Further presentation form confusssed becaused here stated gross then deducted but BPP example start with net figure as exactly match the wordinv of ‘the lease lisbility is initially measured at the present value ov lease payments not paid at the commencement date’

ton1031 says

The ? does not say there is an initial/commencement payment of $5,000 plus 5 payments of $5,000 each. Five payments are required and the first payment starts now 1-1-2015. The $22,730 PV given includes the now required $5,000 and the other 4 payments of $5,000 each. As such, the R of U Asset & Lease Liability do agree at the start of the day (1-1-2015) at $22,730 before the first payment of $5,000 is due and paid at the end of the same day (1-1-2015). This, then, lines up with BPP. Hope this helps.