Right of use Asset

Hi,

The right of use asset is the PV of lease payments. The deposit is effectively a lease payment and so is included in the value of the right of use asset.

Thanks

Correct! Because it gives the present value of future lease payments, the deposit is not a future lease payment so will not be included in this amount. It is a payment made today. It therefore needs to be added on to the 23m to give the 25m. Top work!

Thanks

Hi all,

Same question but slightly different –

Is this question saying that the $2m deposit is already included in PV of $25,272,000.
I was adding $2m to $25,272,000 to get PV.

Thanks in advance.

On 1 October 20X4 Flash Co acquired an item of plant under a five-year lease agreement. Under the terms of the agreement, an immediate deposit of $2m is payable on inception of the lease and the present value of future lease payments at that date have been calculated as $25,272,000. Annual rentals of $6m are payable on 30 September each year for five years. The agreement had an implicit interest rate of 5% per annum.

Calculate the current liability for the leased plant in Flash Co’s statement of financial position as at 30 September 20X5 (in whole $).
The solution given to the below question is :
Current liability at 30 Sept X5: $20,535,600 – $15,562,380 = $4,973,220
30 Sept X5: $25,272,000 + Int 1,263,600 – Pymt 6,000,000 = $20,535,600

30 Sept X6: $20,535,600 + Int 1,026,780 – Pymt 6,000,000 = $15,562,380