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(v) Clarion renewed an operating lease on a property on 1 April 2014. The operating lease payments represent an annual payment (in advance) of $1 million and a lease premium of $1 million. The lease is for four years and operating lease expenses should be included in cost of sales
there is a Operating lease payment of 2000 dr in the trial balance
Please can you give me some explanation about operating lease treatment in this question balance sheet and income statement?(or if there is a full question explained)
Thank you
The first $1m we are told is an annual payment so that’s entirely expensed in this year as it will also be for the next 3 years ($1m each year)
The second $1m is a lease premium and the IAS says we should spread this out over the period of the lease. The lease is for 4 years so 1/4 of $1m ie $250,000 is to be expensed each year starting with 2015 and and ending with the last $250,000 expensed in 2018
OK?
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