- June 8, 2021 at 11:03 am #623874
An initial payment is made on 1 April 20X7 and the present value of the future lease payments at that date is $173,500 Payments in respect of the lease are made in advance and are $100,000 per annum, commencing on 1 April 20X8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available.
Fino Co incurred initial direct costs of $20,000 to set up the lease and received lease incentives from the
manufacturer totalling $7,000.
What is the initial cost of the right-of-use asset as at 1 April 20X7?
Could you please help me with this question. The answer is 286500 but I’m not getting how! Shouldn’t it be 173500+20000-7000=176500?June 8, 2021 at 11:18 am #623877thapa7Member
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- Replies: 6
initial payment or payment made at commencement of lease should be added to PV of future lease payment . so , 173500+100000+20000-7000= 268500June 8, 2021 at 4:31 pm #623941
But the advance payment commenced from the next year (April 20X8) right?June 8, 2021 at 4:32 pm #623942
Commences **June 9, 2021 at 9:40 pm #624302P2-D2Keymaster
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Yes, the payments commence on 1 April 20X8 but the right of use asset will include these payments at present value, hence why we have been given the present value, and are then added to the initial payment plus the direct costs.
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