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Hi Chris could I ask,
Why there’s a difference between the ‘Right-of-use Asset’ and the ‘Lease Liability’ on the Balance Sheet?
(Chapter 12 – Example 2)
Your answer states:
NCA = 18,584
NCL + CL = 18617Thus, the balance sheet doesn’t balance every year until the lease is paid off.
Thanks in advance,
SeanHi Sean,
The only time the ROUA and lease liability are potentially the same amount is on initial recognition. Each is then subsequently treated differently, i.e. ROUA depreciated and lease liability treated under amortised cost, so are unlikely to then be the same moving forward.
Provided that the correct journal entries for each of the two items are posted correctly then the SFP will continue to balance.
Thanks
This makes complete sense, thank you!!!
Could I ask which other accounts I should included on the SOFP to make them balance?
(or is that more of a SBR level question…thus, not worth retaining for my FR exam currently).Cheers,
You’re welcome.
Just keep it simple in that asset, liability and equity balances appear on the SFP. If things don’t balance in the exam then shrug your shoulders and have a little chuckle to yourself knowing that it doesn’t matter if it balances or not. Marks are not awarded for getting the SFP to balance.
Thanks
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