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I have this particular question and can you correct me if its right?
Can pls had decided to lease an asset under an operating lease for 4 years starting on 1st January 2008. Can was able to negotiate a deal so that the first 3 months would be rent free. Under the terms of the lease Can will pay 10,000 a month beginning of 1st April 2008.
What will appear in the Financial Statements of Can for the year ended 30 June 2008.
I have done it as a 30K expense together with no accruals or prepayments.
My working logic was get the 10,000 x 12 (months) / 4 years so I can see what the total expense should be which comes to 30K
Now from 1st April to 30 June he paid 30K so there is no difference hence so accruals and prepayments.
Am i Right?
No!
Why DIVIDE by 4? Surely you should multiply by 4!
Total payable in the 4 years is 45 months @ 10,000 = 450,000
That equates to 112,500 for 12 months
The lease was signed 6 months into the year so the charge for the period to 30 June, 2008 is 6 / 12 x 112,500 = 56,250
Ok?
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