Leases- Capitalise asset at FV or PV of minimum lease payment?

Hi Mike,

This is the question: I am pretty sure there is an error somewere… am I missing something?

JJ enters into a four year finance lease on an item of plant. The contract starts on 1 January 20X4 with the first payment of £200,000 being made on that date. The final payment is on 1 January 20X8. The fair value of the plant is $885,160. The interest rate implicit in the lease is 6.5% and JJ’s reporting date is 31 December.

Complete the following balance carried forward for 31st of dec x4.

Solution

31st Dec x4
BFWD- 800,000
Less payment (200,000)
total= 600,000
then * interest rate – 6.5%
=39,000

the solution seems to suggest the BFWD is the FV figure of 885,160.

how is this so when it should be the lowest of the payments (200,000*4) and the fv?

Am I missing silly here?