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On 1 January 20X6 Fellini Co hired a machine under a four year lease. A deposit of $700,000 was payable on
the commencement of the lease on 1 January 20X6. The present value of the future lease payments was
$1,871,100. A further 3 instalments of $700,000 are payable annually in advance. The interest rate implicit in
the lease is 6%.
What amount will appear under non-current liabilities in respect of this lease in the statement of financial
osition of Fellini Co at 31 December 20X6? [Answers to nearest $’000]In this question, the payment is made in advance, and therefore the payment is deducted and then the interest is accrued. However this is not the case in the answer at the back. Is the book answer wrong?
Hi,
What does it do at the back of the book? You are right in your understanding of the payment being made in advance.
Thanks
can you check it out its from BPP revision kit. If not I will type the answer.
PVFLP payment already include the advance payment of $700000
PVLP (opening balance of initial lease liability) – advance payment = PVFLP (balance)
That is why the answer does not deduct $700000
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