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Finance lease

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Finance lease

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 4, 2016 at 6:06 pm #342390
    huongcuxi
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    A company with a 31 December year end has a non-cancellable 5 year lease for a machine with an estimated total useful life of 20 years. The terms of the lease are to pay £7,500 for 4 years starting on 1 January year 2. An incentive was given to the company at the beginning of year 1 in the form of a one year rent free period. The company would recognise a charge in the profit and loss account to 31 December year 1 in respect of the lease of
    A) Nil
    B) £7,500
    C) £6,000
    D) £1,500

    In my opinion, in the year 1, company do not pay any rent free so the answer should be A. However the official answer is C and I can not understand how to calculate this. Please help me to solve this problem. Thank you so much!

    October 4, 2016 at 9:59 pm #342409
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23333
    • ☆☆☆☆☆

    4 payments of $7,500 = $30,000 over the five year period

    That’s $6,000 each year

    The benefit of an incentive is to be spread evenly over the life of the lease

    The topic heading should NOT be “finance lease” because this clearly is NOT a finance lease!

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