operating lease — OpenTuition Forums

RRidwan10y ago

Help sir.. Under a three year lease agreement a company pays a non returnable deposit of $100000 and will also pay three rental payments of $100000 per annum commencing at the start of the lease.The asset has an estimated economic life of six years. Required : Calculate the charge to the income statement in each year and any balances in the statement of financial position at the end of each year. I can't understand why there should b an entry in the SFP under operating lease..

MikeLittleTutor10y ago#1

Because the non-returnable payment of $100,000 needs to be spread over the life of the operating lease agreement So, at the end of the first year, in SoPorL there will be $100,000 rental + $33,333 allocated part of the non-returnable deposit But we paid $100,000 rental and $100,000 non returnable deposit So at the end of the first year there will be a prepayment (deferred expense) of $66,667 Is that better?

RRidwan10y ago#2

now I understand.. jst tell me how should I account for this prepayment in the SFP?

MikeLittleTutor10y ago#3

Half should technically be shown as a current asset and the other half as a long-term deferred asset - probably stuck half way between TNCA and CA