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On 1 January 20X6 Platinum Co entered into a lease agreement. The initial lease liability was $360,200 and a
deposit of $120,000 was payable on 1 January 20X6 with three further instalments of $100,000 payable on
31 December 20X6, 31 December 20X7 and 31 December 20X8. The rate of interest implicit in the lease is
What will be the amount of the finance charge arising from this lease which will be charged to profit or loss
for the year ended 31 December 20X7?
>>>>> Please explain how to solve this? What does the question mean by initial lease liability? How is it different than the other payments?
The initial lease liability is the opening balance on the lease. We then need to deduct the payment of the deposit, charge interest for the year before then deducting the lease rental payment from the outstanding balance.