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- October 22, 2015 at 3:39 pm #278422
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 #278511If 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 #278792i did that exact same thing ..!!! thanks
October 25, 2015 at 7:41 am #278805You’re welcome
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