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leases

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › leases

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • October 22, 2015 at 3:39 pm #278422
    mansoor
    Member
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    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?

    October 23, 2015 at 8:16 am #278511
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    If 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?

    October 25, 2015 at 5:50 am #278792
    mansoor
    Member
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    i did that exact same thing ..!!! thanks

    October 25, 2015 at 7:41 am #278805
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    You’re welcome

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