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Forums › ACCA Forums › ACCA FR Financial Reporting Forums › lease example on acca web
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!
Is that not exactly the same as the answer given?!!!!!!
