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MikeLittle.
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Vineeth
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Hi Mike
Clarion renewed an operating lease on a property on 1 April 2014. The operating lease payments represent an annual payment (in advance) of $1million and a lease premium of $1million. The lease is for four years and operating lease expenses should be included in cost of sales.
The operating lease payments as per TB (31/3/2015) is $2millionCould you please let me know how the adjustments needs to be made in the SOFP?
MikeLittle
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The correct charge for the year in this case is the annual operating lease payment (1,000) plus the proportion of the lease premium for one year out of four (1,000/4)
So the statement of profit or loss has an expense of $1,250, the statement of financial position has 2 assets (one current and one deferred)
The current asset is 250 (within the next 12 months we shall get the benefit of one year out of the remaining 3 years operating lease premium paid in advance) and …
… the deferred asset 500 is the remainder of that operating lease premium not used up this year nor treated as current as at the end of this year (1,000 – 250 this year – 250 treated as current)
OK?
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