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June 2015 Q3

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › June 2015 Q3

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.
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  • May 26, 2016 at 6:41 am #317154
    Vineeth
    Member
    • Topics: 32
    • Replies: 40
    • ☆☆

    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 $2million

    Could you please let me know how the adjustments needs to be made in the SOFP?

    May 26, 2016 at 7:58 am #317164
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23061
    • ☆☆☆☆☆

    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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