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Hi please help me with this NCA adjustment.
Leased plan at an initial carrying amount 35000
Accumulated depreciation 7000The leased plant was acquired on 1 October 2011 under a five-year finance lease which has an implicit interest rate of 10% per annum. The rentals are $9·2 million per annum payable on 30 September each year.
Even though I am comfortable with the topic of leases, I can’t solve this one. Kindly explain its math to me.
thanksWhat’s the accounting reference date that I’m working to? I assume that it’s 30 September and I assume also that the particular year I’m working to is 2013
So we have to account for the depreciation for the year ended 30 September, 2013:
Dr Depreciation Expense 7,000
Cr Accumulated Depreciation 7,000Now let’s have a look at the profile of the lease
1 October, 2011 Bought 35,000
Interest to 30 September, 2012 3,500
Paid 30 September, 2012 (9,200)
Balance outstanding at 30 September, 2012 29,300
Interest to 30 September, 2013 2,930
Paid 30 September, 2013 (9,200)
Balance outstanding at 30 September, 2013 23,030
Interest to 30 September, 2014 2,303
Paid 30 September, 2014 (9,200)
Balance outstanding at 30 September, 2014 16,133(The rest of this table is irrelevant in an exam but I’ve included it to show you the full picture. You must NOT take the table in the exam beyond where you need to!)
Interest to 30 September, 2015 1,613
Paid 30 September, 2015 (9,200)
Balance outstanding at 30 September, 2015 8,546
Interest to 30 September, 2016 854
Paid 30 September, 2016 (9,200)
Balance outstanding at 30 September, 2016 200In the year to 30 September 2013 there is a finance charge for finance lease interest of 2,930
At the end of the year, in the statement of financial position, there is a total obligation to the finance lease creditor of 23,030
But that obligation needs to be sub-divided into current liability and non-current liability
If 23,030 is the obligation as at 30 September, 2013 and 16,133 is the obligation as at 30 September, 2014, then 16,133 is the non-current liability and 23,030 – 16,133 is the current liability ie 6,897 current liability
In the above table the 200 at the end is there because the question setter used a round amount for the cash value of the asset. For there to have been no balance left at the end of the lease period the cash value of the asset would have needed to be $34,875 …. but you are NOT expected to waste your time in the exam calculating a schedule covering all the years involved in the lease
OK?
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