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hello,
During the year ended 30 September, 20X4 Hyper Co entered into the following
transactions:
On 1 October 20X3 Hyper Co acquired under a lease to obtain a right of use asset which
was initially measured at $340,000. Under the terms of the lease, payment in advance of
$90,000 was made on commencement of the lease, being the first of five equal annual
payments. The right of use asset has a five-year useful life. The lease has an implicit
interest rate of 10%.
On 1 August 20X4, Hyper Co made a payment of $18,000 for a nine-month lease of an
item of excavation equipment. Hyper wishes to utilize the exceptions available under IFRS
16 Leases.
What amount in total would be charged to Hyper Co’s statement of profit or loss for the
year ended 30 September 20X4 in respect of the above transactions?Sir, I am able to calculate lease interest and depreciation on the plant but I don’t understand what are we supposed to do with the short-term lease(nine-month lease).
Hi,
Short life asset – The $18,000 is spread over the nine-month lease period, so $2,000 through profit or loss each month. The total amount through profit or loss this year will depend on the number of months the asset has been used for. There will also be a prepayment for the remaining months that have not been expensed.
Thanks
Hi,
I am struggling to understand the following:
On 1 April 20×7 Fino Co increased the operating capacity on it’d plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer.
An initial payment is made in 1 April 20×7 and the PV of the future lease payments at that date is 173 500. Payments in respect of the lease are made in advance and are 100 000 per annum, commencing on 1 April 20X8. Fino Co incurred initial direct costs of 20 000 to set up the lease and receive a lease incentives from the manufacturer totalling 7 000.Question: What is the initial costs of the RoU asset as at 1 April 20×7?
In the answer the RoU assets are calculated by adding 100 000 of advance payments and are equal to 286 500. Why? From my point of you the advance payments should not be added. Thanks
Hi,
No, the rules state that payment made at the commencement of the lease are included as part of the ROU asset. You therefore include the 100,000.
Thanks
Thanks a lot, I think that the date of payment for advance payments that one year after the commencement date is confusing, should be careful with it.
Agreed. Always check the dates carefully as it is one of the tricks the examiner can easily use.
Hello,
During the year ended 30 September 20X4 Hyper Co entered into the following transactions:
On 1 October 20X3, Hyper Co entered into a contract to obtain the right to use an asset for a five year period. The contract meets the definition of a lease under IFRS 16 Leases. An initial payment of $90,000 was made on commencement of the lease, being the first of five equal annual payments. The present value of the future lease payments on commencement of the lease was $250,000. The right-of-use asset has a five-year useful life. The lease has an implicit interest rate of 16%.
On 1 August 20X4, Hyper Co made a payment of $18,000 for a nine-month lease of an item of excavation equipment. Hyper wishes to utilise the exceptions available under IFRS
16 Leases.
What amount in total would be charged to Hyper Co’s statement of profit or loss for the year ended 30 September 20X4 in respect of the above transactions?Hi,
You need to be specific about what you need help with in the question. I can’t just answer it in full for you. Happy to help when you let me know.
Thanks
Hello,
Is the opening balance of the lease liability is $250000 or 340000?
Should we add the first payment $90000 in the opening balance?Hi,
The opening balance is the PV of the future lease rentals so the 250,000 figure. There is no requirement to add the 90,000 first payment to the lease liability. It will need to be added to the value of the ROU asset. There are illustrations in the class notes that cover this scenario.
Thanks
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