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In BPP practice question (103) if you have access, asking for the NCL of the lease. The payments are made in advance so as per lectures I calculated interest on o/s capital balance, however they have calculated on the PV of future lease payments without taking into account the lease payment made at start of year. Can you advise what is correct method? Cheers
Hi,
The key is to setting up the lease payable table correctly. If you do that then you should be able to get the NCL at the end of the reporting period. As the payments are in advance then it would look as follows:
b/f cash o/s interest c/f
X (X) X X XThe c/f is the total liability and then you can work out the NCL using the method we have used in the notes. Look at the final payment of the next period and the number to the right is the NCL.
Thanks
Would you please explain it, this is the question. If I follow your instructions I get a completely different answer. The main thing is how to calculate the interest? It seems that their formula is different than yours. thank you
On January 1, 2016 Fellinin hired a machine under a four year lease. A deposit of 700,000 payable on the commencement of the lease on January 1 2016. PV of future lease payments is 1,871,100. A further 3 installments of 700,000 are payable annually in advance. The intrest rate is 6%.
What amount will appear under non-current liabilities in respect of the lease in the SFP at 31 December 2016?
Again really confusing about the leasing, There is another example in BPP official number 111 where they did subtract the intrest. Please help
Hi,
The opening balance is the value of the right of use asset. The deposit is the first payment made and so this is deducted to get the outstanding balance prior to then applying the interest at 6%. Have a go and work it out to see how you get on.
Thanks
In BBP exercise 317 Fresco (Jun 12 amended) they capitalised the deposit and then depreciated it. The deposit is not included in the liability to calculate the interest.
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