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red an item of plant under a five-year finance lease agreement. The plant had a cash purchase cost of $25 million. The agreement had an implicit finance cost of 10% per annum and required an immediate deposit of $2 million and annual rentals of $6 million paid on 30 September each year for five years. What would be the current liability for the leased plant in Fresco’s statement of financial position as at 30 September 20X4? A $19,300,000 B $4,070,000 C $5,000,000 D $3,850,000
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Question
On 1 October 20X3, Fresco acquired an item of plant under a five-year finance lease agreement. The plant hada cash purchase cost of $25 million. The agreement had an implicit finance cost of 10% per annum and
required an immediate deposit of $2 million and annual rentals of $6 million paid on 30 September each year
for five years.
What would be the current liability for the leased plant in Fresco’s statement of financial position as at
30 September 20X4?
A $19,300,000
B $4,070,000
C $5,000,000
D $3,850,000
Hello sir i have the answer at the back but why the $2million deposit has not been deduct in the present value?Hi,
You are probably told that the present value is that of the future lease payments and not the total lease payments. Given this the deposit being paid is not a future lease payment as it has already been paid and so it would not be included in the present value figure.
Thanks
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