On January 2016, Profit Ltd enters the contract with City Ltd for the use of a t

Question

On January 2016, Profit Ltd enters the contract with City Ltd for the use of a truck. The contract contained the following clauses:

Lease term: four years with a $6,000 purchase option at the end of the lease.

Lease payments: $200,048 per annum in advance, the first payment is made on 1 January 2016.

Fair value of the truck : $720,000

Profit Ltd incurs $50,000 initial direct cost, including $15,000 legal fees and $35,000 commission to real estate agent

At the end of the lease, Profit Ltd has express intention to exercise the purchase option.

Implicit interest rate: 8%

Estimated useful life of the truck is five years

Profit Ltd accounts for its lease using IFRS 16

(a) Determine the lease liability and initial measurement of a right-use-use asset (i.e. the truck) for Profit ltd.

(b) Prepare the lease liability movement schedule for each year for Profit Ltd.

Explanation / Answer

b. Schedule for Lease Liability for Profil Ltd, a. Computation of Lease Liability for Profit ltd. Date Lease Rent Payable Interest Revenue@8% Reduction of Lease Payable LeasePayable Annual Rental $200,048 01/01/2016 $720,000 Cumm PVF @8% for 4 Year 3.5771 01/01/2016 $200,048.0 $200,048.0 $519,952.0 Present Value of Lease rental (a) $715,591.70 31/12/2017 $200,048.0 $41,596.16 $158,451.8 $361,500.2 Present Value of Purchase Option at end of 4 Year ($6000*0.735) (b) $4,410.18 31/12/2018 $200,048.0 $28,920.01 $171,128.0 $190,372.2 Total Lease Liability record in Books (a+b) $720,001.88 31/12/2019 $200,048.0 $15,229.77 $184,818.2 $5,553.9 or Round Off with $1.88 $720,000 31/12/2019 $6,000.0 $444.32 $5,555.7 -$1.7

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.