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Can anyone help me to understand how the present value of minimum lease payment has been calculated?(UK Syllabus focus – under UK SSAP 21 if the present value of minimum lease payments exceed 90% the lease is finance) I cannot find how the answer $316 977 was calculated.
Yes, but I got different figures. I assume 100 000 is paid immediately and then are 3 additional payments each of 100 000 per year. Interest rate 10%
So 1
100 000 + (300 000 x
)= 325 394 not as in the answer 316 977
(1 + 0.1)3Have no clue where I am going wrong
316,977 is 100,000 discounted for 4 years. Is your assumption of 100,000 paid immediately justified?
And if it were the case that 100,000 were paid immediately, the answer would then be 348,685 NOT 325,394.
I suggest you either recalculate or throw your calculator away
The question says ”the lease required four annual payments in advance of 100 000 each commencing on 1/04/2007” The lease agreement starts at that date, so first 100 000 is in present value
But I think I see my mistake – I should use the formula as for annuity – is it correct?If it is in fact 100,000, and it is 10% cost of capital, and it is payable in advance, then the answer should be 100,000 + 90,909 + 82,645 + 75,131 = 348,685
????
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