Finance Lease

Sir, I found a technical article on leases and fully understand where the figures for the obligations were derived from. It also appears that the amount the text have for TNCA is a typo since they have (700,000 - 87,500 = 525,000) which looks impossible.

Without the benefit of a calculator, and siting in an airport waiting area ..... ....it looks to me that depreciation should be half a year at the rate of 175,000 per annum. So depreciation should be half of 175,000 = 87,500. Book value should therefore be 700,000 - 87,500 = 612,500 Finance lease interest is 700,000 - the first instalment of 200,000 = 500,000 500,000 at 10% for half a year is 50,000 / 2 = 25,000 So there's a current liability of 25,000 finance lease interest which will be paid in 6 months' time Just before the next instalment is paid, there is 500,000 + 50,000 ( a full year's interest ) outstanding and then we pay 200,000. So capital repayable within 12 months is 200,000 - the 50,000 interest which has accrued up to that date = 150,000 As at 31 March, the total liability is 500,000 capital + 25,000 accrued interest. Of that amount, 150,000 capital will be repaid in the second instalment so the capital amount payable more than 12 months hence is 350,000 and 150,000 is payable within 12 months and is the current capital liability and 25,000 is also a current liability Hope that's clear - it seems that both Kaplan AND you have made different mistakes - I can't see how you have arrived at a non-current liability of 525,500!

But what about the interest (350k*10%/2=17500) on 350000 for the period 1/10/X9 to 31 /03/x9 .This should also be included in current liability ...

The interest on the lease has already been dealt with via the 25,000 that has been accrued in CL. Thanks