the text says that the initial setup of the asset/liability in a finance lease is done at the lower of pv or the fair value.
question:
a company can buy an asset for 5710 or lease at 2000/year for 4 years, paid in arrears. implicit interest rate is 15%.
the pv = 8000 x (1/(1.15)^4) = 4574.
so this is lower than the FV of 5710
but the workings of the lease payments uses 5710 as the starting balance.
why?
Ask the Tutor ACCA FR
leases
10y ago#1If you were to calculate
the present value of $2,000 in one year's time ($1,739.1) and
the present value of $2,000 in two years' time ($1,512.3) and
the present value of $2,000 in three years' time ($1,315.0) and
the present value of $2,000 in four years' time ($1,143.5) and
then add them up, it comes to $5,710
"8000 x (1/(1.15)^4) = 4574." is not the same as $2,000 for 4 years at 15%
Maybe time to go back to F2?
i did that exact same thing ..!!! thanks
10y ago#3You're welcome
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