Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › ifrs 16
- This topic has 1 reply, 2 voices, and was last updated 5 years ago by P2-D2.
- AuthorPosts
- November 12, 2018 at 5:11 pm #484607
Hello Chris,
Need your help to tackle a question on leases.
Jetsam Co entered into a lease for an item of plant on 1 April 20X0 which required payments of $15,000 to be made annually in arrears. The present value of the lease payments was estimated to be $100,650 at the inception of the lease and the rate of interest implicit in the lease was 8%. Both the lease term and the plant’s estimated useful life was ten years.
What is the total amount that should be charged to profit or loss for the right-of-use asset
for the year ended 31 December 20X0?
A $11,250
B $6,039
C $7,549
D $13,5881. The answer is D.
2. The working is as follows:
Depreciation for the year: 100,650/10 = 10,065
Finance cost for the year: 100,650 x 8% = $8,052
Total charge for the year: 10,650 + 8,052 = $18,702
1 April – 31 December 20X0 = 9 mths so 9/12 x $18,702 = $13,5883. My issue is that why finance cost has been included in the calculation?
– In the question, it says “charged to profit or loss for the right-of-use asset”, and not any charge to P/L in respect to lease liability.4. Please clarify this.
Thanks in advance.
November 14, 2018 at 8:09 pm #484849Hi,
The total charge to profit or loss is the finance cost and the depreciation, both of which result from the right of use asset created on entering into the lease. One wouldn’t exist without the other.
It would specifically ask for either the depreciation or finance cost in the question if it wanted one of those.
Thanks
- AuthorPosts
- You must be logged in to reply to this topic.