• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

June 2025 ACCA Exams

How was your exam? Comments & Instant poll >>

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for June 2025 exams.
Get your discount code >>

Leases example – chapter 12

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Leases example – chapter 12

  • This topic has 7 replies, 3 voices, and was last updated 4 years ago by Kyle.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • May 27, 2020 at 11:01 am #571946
    accadenislux
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    Hi Chris,

    I need to Thank you for your availability to take the time to clarify our gaps (my gaps).

    Please, a question related to this example. Someone else has previously (2 years ago) already responded to this question but not given the right answer, I guess.

    So, when we recognize the asset at the first step we DR “right of use asset” and CR Liability with the PV:

    DR Asset 22,730
    CR Liability 22,730

    After, when we make works, in amortizing liability everything seems Ok since we are working on the opening value of the liability (22,730 figure above).

    But, when we calculate the depreciation we make the adjustment with +1000-500 and have the figure (23,230) over which would be the final figure for annual depreciation, which is 4,646.

    Here come what makes me a little confused,
    When we deduct this figure (4,646) to obtain the carrying value from the value of asset already recognize in the first step of the beginning (Dr & CR above), we don’t subtract this amount of depreciation from 22,730 (which is the first recognition) but we subtract this 4,646 from the amount 23,230 to obtain the carrying value of 18,584 for the first year.
    Question: the figure for the first booking should be 22,730 or 23,230? Or something else is escaping from me ?!?!

    The beauty of my confusion, if the asset is recognized in the first step by DR “right of use” with the amount of 22,730, how can it be possible to obtain “NIL” at the end of the period when we subtract the depreciation 4,646 from the figure 23,230 and reach the CV of 18,584 at 1 year-end and so on til “NIL” at the end of total period ?!?!?!

    If, in the first step of recognizing the figure of “right use of asset” should be DR 23,230 (like mentioned in the lesson at SPF ” right of use” an subtract the depreciation 4,646 to reach the CV 18,584) then the figure of CR Liability should be 23,230 to balance the amount in the first double entry, but workings in amortizing the liability are “NIL” at the end of period by using the first figure booked for liability which is 22,730.

    So, at this point what makes me confused is the first double entry done at the beginning by:

    DR Asset with 22,730 (which I guess should be, according to workings 23,230 since we subtract the depreciation of 4,646 from this figure and have the Carrying Value at the 1 year-end of 18,584 and “NIL” by the end of the total period that we held this asset),
    &
    CR Liability 22,730 (Which is Ok respecting the IFRS requisitions but don’t match the figure of first DR entry since it should be 23,230 since we had calculated the amount of Asset and subtract the depreciation from this figure).

    I guess something is missing me and is giving me a lot of headaches (Guess you were right at the begging of the lesson regarding this 🙂 )

    Your help is very appreciated.

    Once again, thank you a lot in advance for your time and comprehension.

    May 28, 2020 at 10:15 pm #572164
    accadenislux
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    The first step in recognition:

    DR right of use asset 22,730
    CR Liability 22,730

    DR Right of use asset 500 =>(1000 – 500)
    CR CASH 500 =>(what we have paid)

    May 29, 2020 at 9:00 pm #572249
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    I think I took a short cut. You could, if you wish, recognise the 1,000 and 500 as part of the liability when you capitalise the asset. Then when the payment is made, you can reduce the value of the liability by these amounts. I think it is quicker and easier to take the amounts straight to the right of use asset and cash.

    Hope that help. Let me know if I’ve missed something in your question.

    Thanks

    June 1, 2020 at 1:05 pm #572506
    accadenislux
    Member
    • Topics: 2
    • Replies: 3
    • ☆

    Hi,

    You’re right, is easy and quick to put the amount straight to the use of right, but just at the beginning, the difference makes me a little bit confused. Now, everything is clear.

    Thank you a lot for your time.

    B.R
    Denis

    June 4, 2020 at 10:47 am #572842
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    No worries, you’re welcome and keep up the hard work!

    August 3, 2020 at 10:48 pm #579120
    Kyle
    Participant
    • Topics: 2
    • Replies: 7
    • ☆

    Hi Chris,

    Following on from the above, in the example the lease liability begins its life in the amortized cost working at 22,730, the PV of the $5k annual payments over the 5-year term. However, the lease liability column in section 1.1 of the notes reads to me that we should be using fixed payments less incentives for initial recognition.

    My question is, why is the $500 reimbursement not counted as an incentive?

    Thanks in advance!

    Best,

    Kyle

    August 4, 2020 at 11:29 am #579182
    Kyle
    Participant
    • Topics: 2
    • Replies: 7
    • ☆

    Hi Chris,

    Further to the above, for the following example – Ex. 3 – Sale and Leaseback (1) A – I have attempted to calculate the amortised cost and have run into a problem…

    In the lecture working the example, you mentioned that the financial liability for the seller-lessee is recorded at fair value/transfer proceeds using amortised cost.

    In the first instance, I attempted to use the fair value of 10,000 (000s), however, this got me nowhere close to NIL at the end of the calculation. I, therefore, decided to try discounting the lease payments back to Present Value, resulting in a b/f figure of $8,109 (000s), but I was then unsure as to whether or not my amortised cost working headers should be:

    1) B/F – Cash – O/S – Int @5 % – C/F which is the same as the earlier example in this chapter and results in the final figures for O/S, Interest and C/F being 2, 0 and 2, respectively.

    or

    2) B/F – Int @5% – Cash – C/F which is the same as for financial instruments from the previous chapter and results in the final figures for Interest, Cash and C’F being 78, -1000 and 631, respectively.

    As both calculations result in relatively low final c/f figures, I am a little confused as to which is correct – assuming that I am not way off base and should be using $10m in a manner I cannot seem to determine.

    Any and all help greatly appreciated.

    Best,

    Kyle

    August 4, 2020 at 8:45 pm #579266
    Kyle
    Participant
    • Topics: 2
    • Replies: 7
    • ☆

    Ok, think I have figured out where I went wrong, updated answer below. Best,

    Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10
    SFP
    FL 7,109 6,465 5,788 5,077 4,331 3,548 2,725 1,861 954 NIL (2)

    SPL
    Fin. Cost 386 355 323 289 254 217 177 136 93 48

    Workings: PV of future cash flows

    Year 1 1,000 0.952 952
    Year 2 1,000 0.907 907
    Year 3 1,000 0.864 864
    Year 4 1,000 0.823 823
    Year 5 1,000 0.784 784
    Year 6 1,000 0.746 746
    Year 7 1,000 0.711 711
    Year 8 1,000 0.677 677
    Year 9 1,000 0.645 645
    Year 10 1,000 0.614 614

    7723

    Workings: Amortised Cost

    B/F Int. @ 5% Cash C/F
    Year 1 7,723 386 -1,000 7,109
    Year 2 7,109 355 -1,000 6,465
    Year 3 6,465 323 -1,000 5,788
    Year 4 5,788 289 -1,000 5,077
    Year 5 5,077 254 -1,000 4,331
    Year 6 4,331 217 -1,000 3,548
    Year 7 3,548 177 -1,000 2,725
    Year 8 2,725 136 -1,000 1,861
    Year 9 1,861 93 -1,000 954
    Year 10 954 48 -1,000 2

  • Author
    Posts
Viewing 8 posts - 1 through 8 (of 8 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • sadik.sadka on How to make the best use of OpenTuition
  • SONIC916 on Lessee accounting – ACCA (SBR) lectures
  • AkinMike on IASB Conceptual Framework – Introduction – ACCA Financial Reporting (FR)
  • AkinMike on IASB Conceptual Framework – Introduction – ACCA Financial Reporting (FR)
  • AliMusa12 on Accruals and Prepayments (part a) – ACCA Financial Accounting (FA) lectures

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in