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Why was the market value of the leased plant ($25000) used for the lease workings instead of the discounted total of lease payments NPV ($24739) which is lower?
Good question! I hadn’t noticed that and clearly the examiner hadn’t noticed it either!
For those reading this thread, Vena correctly points out that the present value of the minimum lease payments for the finance leased plant is LESS than the fair value of the plant so, upon initial recognition, the leased item should have been recorded at the amount which represents the LOWER of thePV of minimum lease payments and the cash / fair price of the asset
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