Leasing

Hi,

You will be given the PVMLP in the question at this level, but is PVMLP not old terminology under IAS 17? Under IFRS 16 it is now referred to as the present value of future payments.
If you wish to calculate it then you will need to discount the future payments using the rate implicit in the lease.

Thanks

@aarina said:
Oh okay my old textbook. Thanks for the heeds.

Wait im confused.

To find the PVFP = discount the future payments using the rate implicit in the lease with is the NR (nominal rate)

Future payments: $6m x 4years : $24m x 1.10^-4: $16.39

But already given in question the PVFP is $23m.

Q1: how do i work out the details in this question to confirm that the PVFP is indeed as per $23m?

Q2. the answer for the cash price is $25m. How do i find $25m. I’m assuming its $23m PVFP + $2m deposit right? The cash price is the cost and will be used to calculate carrying amount of asset in SOFP

Q3: (not a question more like a statement, for you to kindly confirm) Interest payment calculated using eir (EIR x PVFP) and instalment calculated using (nr x nominal value).

Q4: PVFP is excluding deposit and issue cost right?

Q1. Don’t forget to add the $6m payment of the first rental too, plus you don’t need to calculate the figure if it is given.

Q2. Yes, I’d assume that the £25m comes from adding the two together.

Q3. Yes, but use the lease liability table to help you here, it makes it a bit easier. Also note the annual interest expense changes each year as the lease liability changes each year, but the cash payment each year is the same.

Q4. The deposit paid will reduce the value of the liability as we DR Liability CR Bank.

Thanks

@aarina said:
There’s only one discount rate given which is the implicit finance cost of 10%

You wouldn’t really be given another interest rates in a leases question, so don’t worry and just use the rate given in the question.