[K1]

You know what I thought about this and can see where I was going wrong. Thanks again.

[K1]

Hi Shaikh, I agree you’d pay the £5K and in the P&L extracts for each year, this would be released on a straight line basis over the 4 year lease term.

However, the key thing confusing me is the Preps, as the answer from the book for this example in year 1 is £750, (£1,000 Deposit/4 year lease term x 3 years remaining). This is despite the remaining lease balance being £3,000. Even if I assume the operating lease is bought into at the end of each year – I would still expect to see an additional £1,000 as a Prepaid current asset on each year’s balance sheet. This is why I can’t yet understand their answer.

Thanks in advance

[K1]

P.S If any of this would change if one payment say was made late, please let me know.

Thanks again

[Author]

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