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Pebworth Co acquired an item of plant under a lease on 1 April 20X7. The present value of the future lease
payments and the carrying amount of the right-of-use asset was $15,462,000 and three rental payments of
$6 million per annum are due to be paid in arrears on 31 March each year. The useful life of the plant is
deemed to be five years. There is no option to buy the asset at the end of the lease term.
The interest rate implicit in the lease is 8% per annum.
What is the total charge to profit or loss in respect of this lease at 31 March 20X8?
>>>> Why do we not calculate the interest on the O/S balance after deducting the 6m from 15462000? In the answer, it’s calculated on the 15462000. This is confusing.
The lease payment is made in arrears and so the interest accrues in full for the year first on the opening balance before any payment is then deducted.