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Hi there,
Can anyone show me how to work out what the P&L and B.Sheet Extracts are in year 1,2,3 and 4 for the below example?
A company is leasing an asset under an operating lease. The initial deposit is £1,000 on 1 Jan of year 1, followed by 4 annual payments in arrears of £1,000 each on 31 December of years 1,2,3,4.
This will help cement the concept for me.
Thanks in advance
P.S If any of this would change if one payment say was made late, please let me know.
Thanks again
simple u pay 5000 to lesser
1000 initial and 4 annual payments this all time apportion and preyments are recorded in current assetsHi Shaikh, I agree you’d pay the £5K and in the P&L extracts for each year, this would be released on a straight line basis over the 4 year lease term.
However, the key thing confusing me is the Preps, as the answer from the book for this example in year 1 is £750, (£1,000 Deposit/4 year lease term x 3 years remaining). This is despite the remaining lease balance being £3,000. Even if I assume the operating lease is bought into at the end of each year – I would still expect to see an additional £1,000 as a Prepaid current asset on each year’s balance sheet. This is why I can’t yet understand their answer.
Thanks in advance
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