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On 1 January 20X6 Platinum Co entered into a lease agreement. The initial lease liability was $360,200 and a deposit of $120,000 was payable on 1 January 20X6 with three further instalments of $100,000 payable on 31 December 20X6, 31 December 20X7 and 31 December 20X8. The rate of interest implicit in the lease is 12%.
What will be the amount of the finance charge arising from this lease which will be charged to profit or loss for the year ended 31 December 20X7?
in the answers, the 120000 is deducted from 360200. why is it deducted if its an advanced payment already made and therefore 120000 is assumed to not have been included in the initial lease liability?
The $120,000 deposit is treated as a lease payment and therefore reduces the value of the outstanding liability.