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LEASE

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › LEASE

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by P2-D2.
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  • October 19, 2021 at 10:42 am #638447
    Shi2004
    Participant
    • Topics: 79
    • Replies: 33
    • ☆☆

    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 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
    Hello sir i have the answer at the back but why the $2million deposit has not been deduct in the present value?

    October 20, 2021 at 7:58 pm #638644
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    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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