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Dear Mike,
I have question regarding the Mini Exercises, Chapter 6 Non current assets, Question 1, Plant as finace lease. How can I calculate the Depreciation expense of 18,400, please?
I calculated (22*5-92)*1,1 = 19,800.Thank you in advance.
Kind regards
The question states “On 1 April 2010 Kala entered into a lease for an item of plant which had an estimated life of five years. The lease period is also five years with annual rentals of $22 million payable in advance from 1 April 2010. The plant is expected to have a nil residual value at the end of its life. If purchased this plant would have a cost of $92 million and be depreciated on a straight-line basis.”
So, $92 million divided by 5 = ?????
Heaven knows why you are multiplying the finance lease interest by 1.1 to arrive at depreciation
?
Cost divided by estimated useful life is the traditional route to find annual depreciation
OK?
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