Leasing

This topic has 2 replies, 3 voices, and was last updated 5 years ago by P2-D2.

Viewing 3 posts - 1 through 3 (of 3 total)

Author

Posts
November 22, 2020 at 5:28 am #596007
TryingCPA
Participant
- Topics: 2
- Replies: 6
On 1 April 20X7, Fino increased the operating capacity of its plant. On the recommendation of the finance director,
Fino entered into an agreement to lease the plant from the manufacturer. The initial measurement of the lease liability
is $350,000. The lease required four annual payments in advance of $100,000 each commencing on 1 April 20X7. The
rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino by the end of the
lease term and there is no purchase option available.

What is the amount that should be shown under non-current liabilities at 30 September 20X7 in respect of this
plant?
A $175,000
B $262,500
C $250,000
D $100,000

I got $262,500. The book says it’s $175,000.

Why do they calculate the interest for six months instead of a year?
November 22, 2020 at 11:55 am #596048
zulma85
Participant
- Topics: 1
- Replies: 19
Good question. I actually get 162,500 which is not even a possible answer.
November 24, 2020 at 9:03 pm #596333
P2-D2
Keymaster
- Topics: 4
- Replies: 7235
Hi,

The interest is for six-months as the lease starts on 1 April X7 and the reporting date is 30 September X7, hence only six months of the lease have elapsed.

Thanks
Author

Posts

Viewing 3 posts - 1 through 3 (of 3 total)

You must be logged in to reply to this topic.