- May 26, 2016 at 6:41 am #317154VineethMember
- Topics: 32
- Replies: 40
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 #317164MikeLittleKeymaster
- 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)
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