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section b question 3rd Clarion sum
in that adjustment (v) operating lease payment represent an annual payment of $1m and lease premium of $1m . the lease is for four years and operating expenses should be included in cost of the sales .i really didn’t understand this adjustment and i do not know how to v treat this under current asset and non current asset .
can u please explain me sir how to do this ??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
We tend to take as ‘current’ those items that will apply to the next following 12 month period
Of the $1,000 lease premium payment already made, $250 relates to the current year and is therefore expensed this year
The remaining $750 relates to 1/3 next year and is therefore treated as a current prepaid asset and the remaining 2/3 relates to the two following years ie more than 12 months hence and is therefore a deferred asset separated from the current assets
OK?
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