BPP revision guide Q 163 , Leases.

After the first $100,000 had been paid, only $250,000 capital was outstanding I think the issue here is how to compute the lease interest The interest on $250,000 @ 10% for 1 year is $25,000 That is split into 2 halves so that we can arrive at the current liability for interest as at the year end of 30 September, 2008 ($12,500) What you are now doing is charging interest on that interest by calculating 10% for half a year on $262,500 ($250,000 capital + the half year's interest up to 30 September, 2008) whereas it should simply be the 'other' half of the $25,000 originally calculated When that second $100,000 is paid on 1 April, 2008, it settles lease interest of $25,000 and therefore pays only $75,000 capital leaving only $175,000 capital outstanding as at 30 September, 2008 So, in the financial statements for the year ended 30 September, 2007, the non-current liability is that figure of $175,000 OK?

Because the contract requires payments to be made on 1 April so, at any year end, there is a half year's interest accrued since the previous 1 April payment but not yet paid - and won't be paid until 6 months later on the next 1 April