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lease finance cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › lease finance cost

  • This topic has 1 reply, 2 voices, and was last updated 11 months ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • March 4, 2022 at 3:45 pm #649832
    thulasikaur
    Participant
    • Topics: 5
    • Replies: 7
    • ☆

    hi sir,

    This right-of-use lease relates to a new piece of machinery. The fair value of the machine is $220,000. The agreement requires Blocks Co to pay a deposit of $20,000 on 1 January 20X5 followed by five equal annual instalments of $55,000, starting on 31 December 20X5. The implicit rate of interest is 11.65%.

    For agreement one, what is the finance cost charged to profit or loss for the year ended 31 December 20X6?

    Answer:19607

    Hi sir, im confused, the payment made is in arrear( mentioned starting on 31 December 20X5) so I assume its arrears. My answer: finance cost= 220000×11.65%=25630..pls correct me sir.

    Thank you.

    March 5, 2022 at 11:07 am #649883
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6443
    • ☆☆☆☆☆

    Hi,

    If the payment is in arrears then you are correct to apply the interest to the outstanding capital balance for the year. Here, I’m not convinced that your $220,000 starting figure is correct. Check what it should be and then you will get the right answer when applying the 11.65%.

    Thanks

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