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Hi Sir,
Could you help explain a bit on the effect of deposit paid on the lease liability & right-of-use asset please?
I’m doing a question in BPP kit, and it seems that
– With normal deposit:
Lease liability = PV at date – deposit paid.
No effect on asset.– With non-refundable deposit:
Lease liability = PV at date, no effect.
Asset = Lease liability + non-redundable deposit.But I don’t quite understand the reason behind this. Could you help explain this please?
Thank you so much.
Hi,
Is there a different treatment for deposits? I wasn’t aware that there was.
As far as I know, the deposit is included in the PV of the cash flows when calculating the lease liability. The lease liability is then the value of the right of use asset and once the deposit payment is made, it reduces the value of the lease liability immediately.
Where in the study materials does the confusion arise? Let me know and I can have a look.
Thanks
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