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hello,
I am Thuy and could you explain to me why the cash price is alway the cost of an asset held under lease con tract in lessee’s book?
Dr asset account
Cr lessor (liability) account
i read that the amount to be recorded in this is the Lower of the fair value and the Present value of the minimum lease payment (calculated base on the implicit interest)
so why in the past year exam, they ignore to calculate minimum lease payment and use cash price to be the cost of the asset? some case i calculated minimum payment is less than cash price, so why they always choose cash price?
thank you very much!You are correct of course – the asset should be recognised at the lower of cash price and present value of minimum lease payments. You’ll often find in an F7 exam that the examiner tells you to recognise at cash price and not to bother calculating present value
Hi all..does anyone know how the net figures came out of reconciliation of obligations under finance leases ..the gross is understood ..how was 2790,8793,1712 calculated…thank you for your help..Mike! Can you help? Chapter 16,example 2.
These 3 values represent the present value of the future lease payments, split into the three categories <1 year, >1 year<5 years, and >5 years
Apply the company’s cost of capital by way of discounting to the payment due to take place within 12 months and you should arrive at 2,790. Similarly, apply that same cost of capital and discount the payment due to take place in 6 years’ time and you should arrive at 1,712
OK?
Thank you for your prompt response..could you please give a mathematical formula for one of the payments due…My understanding of the present value of £3000 at 10% rate of interest for 1 year is 3000/1.1. Am i missing something here? thank you very much Mike..
And that = 2,727. Maybe it’s me that’s missed something. I’ll check it but, meanwhile, you obviously have the right idea. For interest’s sake, what’s the present value of 3,000 in 6 years’ time?
Hi – I don’t know! i don’t have a calculator easily to hand, but it sounds to be ok. I cannot imagine why I have rounded (?) 2,727 to 2,790 nor 1,693 to 1,712
Anyway, as I said in the earlier post, you’ve obviously got the hang of how to do it so that’s good
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