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Hello, Chris!
Could you please help me to clear one moment in a lease question from Kaplan Study text:
“On 1 June Fryatt commenced using an item of plant and machinery under a lease agreement, with three annual payments of $29 000. The first payment was made on 31 May 2017 and has been charged to cost of sales.”
Also we’ve got the amount of CoS from trial balance as of 31 May 2017 which is $324 000.
In the answers while calculating actual amount of CoS to put in P&L, we remove lease payment from $324 000.
My concern is why do we do it? I can understand why we shoudn’t add it to CoS(because CoS $324 000 already includes this payment), but why on earth should we reduce our CoS amount by this lease payment? We actually paid $29 000, and, as I assume, it should appear in our P&L as an expense whether as a part of CoS or as a separate line, but in the answers we simply deduct $29 000 from CoS amount from trial balance and move on.
I’ll really appreciate your help on this one and hope the case is not some rookie mistake I’ve made 🙂