Leases and Finance costs — OpenTuition Forums

SSavina4y ago

Hi all, i am extremely confused when it comes to calculations related to leases. Could you please clarify when do we calculate the finance cost (cause it can bring quite different results) if we calculate it straight after the PV, OR after we substract the yearly payments. I see oftentimes that its the one or the other and i cant seem to understand the pattern in order to get the right answer.. Also sometimes there is a depreciation included and other times not, is there like a standard principle that one can follow? Thanks in advance!

P2-D2Tutor4y ago#1

Hi, The finance cost calculation will depend on whether the lease payments are made at the start of the lease period (in advance) or at the end of the lease period (in arrears). If the payments are in advance then we deduct the payments before then applying the interest rate to the outstanding balance. If the payments are in arrears then we apply the interest rate to the balance outstanding at the start of the year before then deducting the lease payment. The ROU asset is depreciated over the shorter of the lease term and the useful life, so always depreciated. Thanks

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