- April 3, 2021 at 6:07 pm #615854mmkhan7Member
- Topics: 12
- Replies: 2
I came across the following question and I kindly request you to help me.
This question is from the example questions for the Certificate in International Financial Reporting (CertIFR) on the ACCA website. I’m posting it here as this forum seemed the most appropriate.
The question is as follows:
Sebastian Ltd enters into a new four-year operating lease agreement on 1 January
As an incentive to sign up they receive a six-month rent-free period initially, after
which rent will be charged annually in arrears at a cost of £4,000 per annum.
What figures should appear on the statement of financial position (SOFP) and
in the statement of profit or loss (SOPL) for the year ended 31 December 2011
in relation to this lease?
A: No balance (SOFP) and Expense of £2,000 (SOPL)
B: Accrual of £1,500 (SOFP) and Expense of £3,500 (SOPL)
C: Prepayment of £1,500 (SOFP) and Expense of £3,500 (SOPL)
D: Payable of £2,000 (SOFP) and Expense of £2,000 (SOPL)
The correct answer is B.
According to my understanding, as there is no interest rate provided in the question to calculate the present value of the lease liability, it will be calculated as follows:
£16000 (£4000 × 4 years) less £2000 (£4000 × 6/12) which will be £14000.
The annual rent will now be £3500 (£14000/4 years) which will be recorded as Lease Expense in the SOPL.
However, I don’t understand why they are recording £1500 as an accrual in the SOFP.
The lease liability outstanding after the first payment should be £10500 (£14000 – £3500).
Is it a typo?
ThanksApril 9, 2021 at 10:46 am #616558Stephen WidbergKeymaster
- Topics: 12
- Replies: 2843
Leasing rules changed on introduction of IFRS 16. Recommend you do not look at leasing questions that are more than 2 years old. No such thing as operating and finance leases for lessee.
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