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HI I have problem with my debit and credit entries regarding lease rentals.
for example.
a lease rental of $20m was paid on 1/4/x0. it is the first of five payments in advance for equipment which has a cash purchase price of $80m.
Auditors say this is a finance lease and the implicit interest rate is 12%.
leased assets should be depreciated on a straight line basisMy debit credit entries are as follows.
CR Lease liability 67200
DEBIT prop, plant and equip (80,000-16,000) 64000
DEBIT finance costs (60,000X0.12) 7200but my entries are 4000 out. Does anyone know why? what am I missing here?
Many thanks for any help
Missing 4,000?
Wchat about completing your double entry properly instead of trying to short-cut it. Then the missing 4,000 would leap out at you.
Try this:
Dr TNCA 80,000
Cr Obligations A/c 80,000Dr Depreciation charge for year I/S 16,000
Cr Accumulated depreciation A/c 16,000Dr Obligations A/c 20,000
Cr Cash 20,000Dr Finance costs I/S 7,200
Cr Accruals SoFP 7,200You should see from this that you have omitted to reflect the debit of the depreciation to the Income Statement and you have also overlooked the 20,000 cash credit
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