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Question 107 in BPP
On 1 October 20X3, Fresco Co acquired the right to use an item of plant under a five-year contract. The contract meets the definition of a lease under IFRS 16 Leases.
The terms of the contract required an immediate deposit of 2 million with 5 payments of 6 million paid annually in arrears commencing on 30 September 20×4.
The present value of the future lease payments is 22,745,000. The rate of interest implicit in the lease is 10% per annum.What is the carrying amount of the lease current liability in Fresco Co’s statement of financial position as at 30 September 20X4?
The Answer is 4,098,050
Hi Sir, when I check the answer, it uses the PV of future lease payment (22,745,000) to multiply interest @10% first and then less the payment in arrears (6,000,000), which is different from the method used in the lecture.
In the lecture, the PV less the annual payment first and then multiply the interest rate to get the c/f value.Please suggest
Thank you
Hi,
The payments are in arrears and so the first payment is at the end of the year, hence why the interest accrues on 22,745,000.
You can ignore the deposit as it will not be included in the present value of FUTURE lease payments as this is a payment that is made at inception of the lease. I think there is a section in the class notes on this confusing initial deposit scenario.
Thanks
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