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lease example on acca web

Forums › ACCA Forums › ACCA FR Financial Reporting Forums › lease example on acca web

  • This topic has 1 reply, 2 voices, and was last updated 14 years ago by MikeLittle.
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  • Author
    Posts
  • November 23, 2010 at 9:42 am #46160
    gaodoudou
    Member
    • Topics: 4
    • Replies: 0
    • ☆

    https://www.accaglobal.com/students/student_accountant/archive/2010/112/3366323

    Above is the lastest lease article published on ACCA global website. I wonder why ACCA added lots of contents to F7 for this sitting. Will these be the focus for Dec 2010?

    From the example 4 given :

    Example 4 – Operating lease treatment
    On 1 October 2009 Alpine Ltd entered into an agreement to lease a
    machine that had an estimated life of 10 years. The lease period is for
    four years with annual rentals of $5,000 payable in advance from
    1 October 2009. The machine is expected to have a nil residual value at
    the end of its life. The machine had a fair value of $50,000 at the
    inception of the lease.
    How should the lease be accounted for in the financial statements of
    Alpine for the year end 31 March 2010?

    The answer given is :
    The accounting for this lease should therefore be relatively
    straightforward and is shown below:
    Rental of $5,000 paid on 1 October:
    Dr Lease expense (income statement) 5,000
    Cr Bank 5,000
    This rental however spans the lease period 1 October 2009 to 30
    September 2010 and therefore $2,500 (the last six-months’ rental) has
    been prepaid at the year end 31 March 2010.
    Dr Prepayments 2,500
    Cr Lease expense 2,500

    Income statement ext ract
    Lease expense 2,500
    Statement of f inancial posi t ion ext ract
    Current assets:
    Prepayments 2,500

    My question is – is the answer correct? Shouldn’t it be

    Dr: prepayment 2500
    Dr: Interest expense 2500
    Cr: Bank 5000

    thanks!

    November 24, 2010 at 6:57 pm #71258
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23311
    • ☆☆☆☆☆

    Is that not exactly the same as the answer given?!!!!!!

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    Posts
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