Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › 2 very similar lease questions with different answers
 This topic has 2 replies, 2 voices, and was last updated 3 years ago by P2D2.

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May 31, 2019 at 5:33 pm #518094twistedheat
 Topics: 11
 Replies: 34
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Question 1 (107 in 2019 revision kit for BPP):
Plant acquired on 5 year lease on 1st Oct.
Lease requires immediate deposit of $2m.
PV of future payments is $25m
Implicit finance cost 10%
Rental payment $6m payable on 30th sept.This question answers it as:
PV of future payments $25m
Deposit $2m
Right of use asset $27m
Initial payment ($2m)
$25m
Interest 10% x 25m
Rental payment ($6m)Question 2 (Question 3 in BPP revision kit mock paper 1):
Item of plant on 5 year lease on 1st oct
PV of lease payments $25m
Immediate deposit $2m
Implicit interest 10%
Rental $6m payable on 30th septThis answers the question as:
$25m – $2m = $23m
Interest 10% x $23m
Rental charge ($6m)Almost exactly the same question but answered different, even though they are worded identically.
I thought the first answer (add deposit to PV of lease payments to get right of use asset and then deduct the deposit before we calculate interest) was the right answer, so that is how I answered it for the 2nd question but got it wrong.
May 31, 2019 at 7:26 pm #518105twistedheat Topics: 11
 Replies: 34
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I should add, my issue isn’t with the final answer but with how they arrived at said answer, especially with regards to the treatment of the initial deposit and the figure on which the interest is calculated thereafter.
June 3, 2019 at 7:59 pm #518637P2D2Keymaster Topics: 4
 Replies: 6301
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Hi,
I think the questions are a bit unfair and I’m unsure if there would be something as nasty in the exam. The difference is in the wording of the question.
In the first question it gives the present value of the FUTURE lease payments, so given the deposit is paid immediately then this is not a payment in the future and so is not part of the present value calculation. Therefore the deposit needs to be added to the present value calculation to get the total present value of the lease payment.
In the second question we are given the present value of the lease payments, and so as this is not the future payments then we are to assume that this figure is the total present value of the lease payments inclusive of the deposit.
All a bit crazy but I hope this helps you see the madness in the two questions.
Thanks

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