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In the following technical article … https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/sa_oct10_f7.pdf
I tried to solve Example 1 – Rentals in arrears treatment
But I got it wrong somewhere, having been ‘misled’? ..by the question.
The Q states that “Annual rentals of $5,000 are payable in arrears from 31 March 2010…” and then “The lessor includes a finance cost of 15% per annum when calculating annual rentals.”
Since the last statements says INCLUDES (‘inclusive’) and the rental is $5,000, I was tempted to say Interest expense = $652 i.e. 5000 x 15/115, and then the Rental (capital repayment) the difference between the bulk $5000 and the $652 interest included within it.
The adjustments to the financial statements (Splitting between NC- and current liabilities etc) were fine for me, but for this calc.
How can I avoid this misinterpretation in future, i.e. am I missing something on one of the Lease standard’s definitions?
Or should I just say… ‘rentals’ implies cap. elt + Int. Exp … where rentals are always a fixed amount?.Any help, would really be appreciated!
That seems to me like a reasonable interpretation and I’m surprised Steve Scott has used such an ambiguous expression.
The simple answer to your question is “5 marks” but if your mis-interpretation is widespread through the student community, the examiner will have instructed the marking team to mark as correct either 15 / 115 calculation or 15 / 100 calculation
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