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chippychipz.
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- October 18, 2020 at 5:48 pm #589748
Please can someone help with the below?
A vehicle was acquired on a 4 year lease with annual payments of $10,000 to be made in arrears. A deposit of $5,000 has already been paid. The interest rate implicit in the lease agreement is 12%.
What is the current lease liability that will appear in the statement of financial position at the end of Year 1 of the agreement? (State your answer to the nearest full $)
I would of started by working out 12% of 10000 but the answer id doing something different
October 19, 2020 at 12:25 pm #590452Hi Saiyini,
If I’m right I could try help you out, current liability is $7117? (maybe some rounding differences)
If I’m wrong I’ll have to recheck my workings.
October 20, 2020 at 5:33 pm #590829yes that is right how did you work that out?
October 20, 2020 at 11:07 pm #590887First calculate the NPV of the lease liability either through calculator or tables, or which ever method you prefer $30373
• During the first year:
Initial lease liability: 30 373
Interest: 3 645 [30373 * 12%]
payment: 10 000
closing balance: 24018 [30373 + 3645 – 10000]• Second year:
Opening balance: 24018
Interest: 2882
Payment: 10 000
Closing balance: 16900Recall: the current liability that will be registered in the financials for the first year is the principal amount that will be paid in the next financial year (the next 12 months), and the non-current liability will be what needs to be paid in the years there after.
•Current liability is 24018 – 16900 = 7118
• OR simply the payment less interest charged during the second year: 10000 – 2882 = 7118And similarly the non-current is: 16 900 because this is what’s going to be paid after year 2
October 21, 2020 at 8:56 am #590949Thank you I struggled with working out the NPV- do you know a quick method than using the equation ?
October 21, 2020 at 11:28 am #590984I pretty much exclusively use my financial calculator to calculate everything, but I would assume that the next best option is to use the discount factor from the tables.
Year 1: 10 000 * 0.893 = 8 930
Year 2: 10 000 * 0.797 = 7 970
Year 3: 10 000 * 0.712 = 7 120
Year 4: 10 000 * 0.636 = 6 360
= 30380I wrote yesterday, can confirm the PV tables are there but no formulas.
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