HAPTER? $s IERS-1GLEASES a. a CHAPTER2 TERS-16: LEASES ‘MULTIPLE CHOICE QUESTIONS Diag the yeu eden 2014 ney ene into wo ee sons (0s Gccher 09, ea mde appt R900 eng ef a re Sena ment drs ee an am ofp Tee ar ip rst rf 1 ‘ede ps ooh lene mento Och 200 na 37520 On Jay 214 ey mae pent of. 8000 a oe erie fee of sxinmet ‘at anmsta wal woe charge ey’ seen of pot or or ended S0Seremer20lsirepetoftesbovesnacton - (a) Rs 1.080.000 @ Re Luaes (Rs 11706 (@ RS.1185,000, Zeta Limited entered nto Give lene agreement on | Novenbe 2012, paying RS, 109:750, ‘et annur, commencing on 31 October 205. The reset vale eth les payments mas RS £50 00 and the interest ate plc nthe ese was 7% ‘Whats tbe aout ob how within x-curest abilities t 31 October 2013? () BS 2020" Reh (R37 (R360) [ERS 16 Leases pros i set tobe exe fm the seogtonteament fr right-of- he act, Waich ofthe foliage leas oa eatity woul be pened tobe exempt? Ta) Aused motor scicle with an orig isto Rs 100,40 anda curent hirvloe of Rs, 7,000, eased fo 24 mats (@) Anew motor vehicle wi cost of Rs. 50,00, eased for 2 mons A tow mor vehicle wih cor of Rs. 100,00, asdf 26 mont, ob rented 10 astomers a daily rental basis ‘Row moter ehice wid # oe of Rs 100,000, leased for 12 months © (001 anury 203 Ria Linited aus ew machine with an etimated weil io 6 years under the following agreement: ‘Ra etal pyeneat of Rs 1376000 wil be pyable immediately nd farther anual peyments ‘ts 2000000 wl edu, commencing! Janay 2015.The inkest rate impish!" em ‘The preset value ofthe ete payments, excluding tbe inal payment is Rs, 8,624,000 ‘What te recorded is fmol sateen at 3 December 201 in espest of he ase lay? (0) Finance cost Rs 412314 ‘Nowa! ibility Rs. 3.66234 (Caren iby Gosading incest payable) Rs, 2,000,006 (0) Fiance co Rs. 529,900 ‘Now-uret ity R. 5,153,900 ‘Creat by (nding interes payable) Rs. 200000 —r-TTERS-16 LEASES ci ae (oy Finance con RS. $81,200, Rae bly Rs 5171200 Non ly Gacodig intrest payable) R200, 000 Foose cost Re 585,10 Ronen ably Re, 4370500 Seat abit Gotan intrest pyle) Rs 1,528,100 5, On1 April 2017 Pink Limited (PL) entered into five-year lease agreement for a machine with an estimated life of 7 years. Which of the following conditions would require the machine to be ‘depreciated over 7 yeas? (2) PLihasthe option o extend th lease fortwo years at a market-rate ental (B)_PLihas the option to purchase the asset at market value atthe end of the lease (© Ownership ofthe asset passes o PL at the end ofthe lease period (© PL's policy for purchased asses is 06. On 1 January 2014 Beta Limited (BL) machinery for years with rentals of Rs. 26% ‘useful life ofS years and atthe end ofthe le present value of the lease paymeats at the rate implicit inthe lease is 12.2%. For the year ended 31 Devember 2014 BL Re, 210,000 as an operating expense. Ins financial statements for 2014 ha been finalised {In te statement of changes inequity forthe yer ended 31 December 2015 wht adjustment will be necessary to resined earings brought forward? (@) R65,530 credit @) Rs. 152,530 credit (©) Rs. 210,000 debit — @ Rs Nil sgreemeat to leave an itemof ly in arrears. The asset has 2» emership wil pass to BL. The © was Rs, 635,000 and the interest ase by ecording the peyment of 67. 01 October 2013, Malan {imi es an item of plant under a five-year lease agreement ‘The agreement hd an implicit ters of 10% and required anual rentals of Rs. 6 milion tobe paid on 30 September each yur for five yea. “The present value ofthe annua etl payments was Rs 29 milion ‘What woul be the caren ibility for the eased plant in Multan Litd's sateen: of financial postion as at 30 September 2014? (@) Rs. 19,300,000 ©) Rs.4,070,000 (© Rs.5,000,000 (© R5.3850,000 8. Which of the following would not be included within the initial cost of right-oF-use asst? (2) Installation cost ofthe asset (b) Estimated cost of dismantling the asset tthe end ofthe lease period (©) Payments made tothe lessor before commencement ofthe lease (@) Total lease rentals payable under the ease agreementguapren? rs te bases 09, IFRS 16 Leases permits cetin assets to be exempt from the recognition treaent for right-of use assets, Which ofthe following leases of asses leased 1 an enity would NOT be pemited to be exempt? (@) Vehicle with cost of Rs. 900,000 lease for 9 months (@) Telephone system with cost of Rs. 45,000 leased for 24 months (©) Vehicle wit original cos of Re, 900,000, curent market value of Rs, 45,000 leased for @ 10, Noor Limited leases ca for office use. The present value of lease payments is Rs, 2,735,500 snd the rate implicit in lease is 10%. The terms of the lease require three annual instalments of Rs, 1,000,000 each atthe start ofeach year [Atthe end of is year of lease what mount will be shown forthe lease lablity inthe ‘company’s statement of financial postion under the heading of non-curent abilities? (@) Rs-1,000,000 24 months ‘An item of furniture of Rs. 30,000 leased for 4 months (@) Rs. 1,090,000 (©) Rs. 903,060 (@ Rs 909,050 11, Which TWOof the following are disclosure requirements relating toa lss0r? (@) Selling profit or loss (©) Income from subleasing right of use assets {@) A reconciliation of unde oed lease payments to the net investment in the lease (@)_ The charge related ro shor 2 oases 12, Jalal Leasing Limited ULL) pve ‘isance lease on J January 2011 toa customer. The lease term is 4 years. Te fu waste is RS, 11,000 and JL tneured initial direct costs of Rs. 420, The interes rat mii i lease i 15%, Rentals of Rs. 4,00 ae receivable on 11 December (also financial year cud) cach year. a ‘What is amount of net investient in lease tobe presented under eurent asset as at 31 December 2012? (@) Rs.9,133 @) Rs.2,630 (©) Rs. 3025 (@ Rs 6,503 13, Accompany leases a computer server with egal tile ofthe asset passing afer our years. The company usually depreciate compiters over six years. ‘The company aso leases a machine for fourteen years, bu legal ttl doesnot pass to the lessee atthe end of the agreement, The company usually depreciate machinery over twenty years, ‘Over what period of time should the computer and machine be depreciated?» (@) Computer (4 years) and Machine (14 yeas) (®) Computer (4 years) and Machine (20 years) (©) Computer (6 years) and Machine (14 years) (@) Computer (6 years) and Machine (20 years)CHAPTER2 TFRS-16 LEASp as ERSTE M 15, 16, aoe ae Carying valu of buldg s 739,0 ads rag wel ew residual value. ° Fen etontentan mca Srl eaters en ‘next two years en ,000 per annum. shall be paid for fo “ ‘The lease term is 4 years. ms lowing to yan Fond tepatapstain ir ea December 2011? * Joss forthe year ie pec ©) Rs. 25,000 8 ERs ales Linited (LL) a eed cen eupestaDy P n iy Pr Linen July 2013. In this respect, the following information is available: " Eine a 180 Useful life ofthe equipme st of interest a 5 pment ise: ste of interest implicit in he lease is 1 ‘What amount will be presen: "soo fOr net investment in lease as a 30 ne 2014? (@)Rs.25.69 milion () _ Rs.24.48 million (©) Bs. 18.60 millon @ Rs 16.69 milion Alpha Limited leases an asst with an estimated useful feof 6 years fran inital perio of ears and pion eonday period o2 years diag wich one lb payable, ‘The present value ofthe inital period lease payments is Rs 870,000 ‘What will be the carrying amount ofthe asst in Alpha Limited’ sateen of financial postion atthe end ofthe second year ofthe lease? Rs. Kamil Limited (KL, is engaged in manufacturing of plants. The following data relates to an asset leased out by the company on January 01,2011 Cost Rs, 200,000, Sales price (quoted) Rs. 240,000, Installment atthe end of each year Rs. 40,000 ‘Lease term 7 years ‘Unguaranteed residual value Rs. 2,000 Initial direct costs Rs. 1,000 Rate of interest (quoted) 1% (the low rate is quoted to atract customers) Marke ate of interest, ™% ‘What isthe amount of nt investment in lease as at January 01,2011? > Ss18 B curren ——isenzases Kamil Limited (KL) is engaged in manufacturing of lan. The following dita relates set eased out by the cmpany on January 01,201 elas omn Cost Rs, 200,00 Sales price (quoted) s.240,000 Installment at the end of each year" Re. 40,000, Lease term yes ‘Unguaraneed residual value 5.2000 Initial det costs Rs. 1,000 Rate of interes (quoted) % (the low mt is quoted to atract customers) Market rte ofinterest ™% ‘What isthe amount to be charged in ost of sles in respec of above transaction on January 0, mur Bs. DJ Products deals in large office machine, It ls off such machines on lease. One such ‘machine was leased toa customer on July 1, 2004. tsparculars are as follows: Purchase cost of DI Products Rs, 150,000 Useful life 8 years Lease period 6 yeas ‘Unguarateed residual value Rs, 10,000 each ye Rs. 36,500 Annual rental payable at bepinng ‘The eustome’ineemental bora! lease is 8%. ‘What is amount of net inves Rs. « resogaited on 1" Jly 20047 Guava Leasing Limited (GLL), had leased a machinery to Honeyberry Limited (HL) on 1 July 2017 oa the following terms (The non-cancellble lease period is 3.5 years. Each semi-annual lease instalment of Rs, 48 millon is receivable in arear. “The lease cootains an option to extend thelease tem by 15 years, Bach semiannual Tease instalnent in the extended period will be of RS. 15 milion, receivable in areas [his reasonably certain that HL wil exerise this option, (ii) The rat implicit the lease is 10% per anum, (Gv) Tae useful life of machinery is 6 years. ‘The unguaranted residual value atthe end of lease term is estimated at Rs. 20 ro) rallion GLI. incued a direct cost of Rs. 10 millon and general overbads of Rs (05 malin to complete te transition “The net investment in lease at inception of ease hs been calculated i. Rs 319.06 (iy nilion ‘What isthe amount of interest income tobe recognisedin profit or las for the year ended 30, June 20187 Rs. rilion «i ae(CHAPTER-2 IFRS-16 LEASES a. 2. Which of the following should NOT be included in the initial cost of a rigkt of use asset? (2) Amount of initial measurement ofthe lease liability (b) Present value of estimated cost of dismantling the asset at the end of lease period (€) Payments made tothe lessor before commencement of the lease (@ Gross lease rentals payable under the lease agreement ‘Autumn 2019 Q4 ‘Wood Leasing Limited has leased certain equipment on 1 July 2018. In this respect, following information is available {Fair value of equipment in eee T2000 i on expiry ofthe ease coro ioai ‘Useful life of the equipment is estimated at 5 years. Implicit rate in the lease is 16%. ‘What amount of net investment in lease will be presented in non-current assets as at 30 June 2019? (@) Rs.57.72 million (b) Rs. 46.96 million (©) Rs. 51.34 milion (@) Rs. 39.55 million Autuma 2019 Q 4SHAPTEE aa—_—S__———_tsssurases, SOLUTIONS aT | Re for vines: Sent are not equredo alias PVRs Ge Gi] © | Note for students Sade are not equiv cleats PV Tits piven a queton | ‘Statement of Cor Income (Extracts) ee ae Expenses A Depreciation expense (normal ease) (3,752,679) 150516 Interest expease (normal lease) (W1) Heed | Rent expense (Shot em ease) (180,00012 x 9) 135,000 | 1,170,864 Date. _Insaliment_ Principal __Interest__Balance Taos TI. ios $00,000 900,000 - 2852879 iors 900000 Gla 712 285,288, 02. (b) ‘schedule: Date astaliment_ Principal" _Inerest__Balance_ Tayi 450,000 a1n0n3 109750 © 78280«—«31,800—371.750 sino i sr 26003 188,023 3s Rs 288,023 12 moat 5, eatent liability in opin includes both Tease Faby eure orion st payable Statement of Compr: s {oome Extract) * Expenses Rs. — | — | Fince Cas a3 ‘Statement of Financial Position (Extracts onl) Liabilities “Non-curent ibis 3,566,234 ‘Obligation under lease ‘Current ibiities Current portion of Obligation under ease T7686 Interest payable 412314 7,000,000 ization schedule: Date Instaliment _Principal__Inerest__Blance Ti3 70,000,000 Wis 3,376,000" 3,376,000 = 6624000 vind 2,000,000 1,470,080 529,920 5,153,920 iins 2,000,000 1,587,686 412314 3,565,234 * PY including down payment (8,624,000 + 1,376,000) = 10,000,000 eT Lin ras.16 ** 2,000,000 + 1,376,000) = 3,376,000 | “Answer (2) ino because itis ot at nominal rental | Answer (bis no because it eaanot buy at below FV | ‘Answer to (isn Because we do nats policy of en, ther we go fr principles | jeccctmeeasee ee SOTFRS-16 LEASES Suarrena TSE LEASES 0 [| Nees Dots quo ae SOF (1): Amortation shed: . Date tagullment_ Principe! _Intwest_ _Balane qe ees 500 iit Jouraal entries in 2014 is Deh Original 735,000 || sono Taw] man "1000 a ao | 210,000 ee i : _ 35010 Tae ably TES | etd cams (ere expen) | “rar | | - - Rewiae eas (st | 21000} Retinal eaing (Depetaton ep 17000 ‘Accurmlsied Dpreciation _ 127000 Net eet on retained eamings~ 7770+ 210000 ~ 17,000 = 3530 ners) ret | Amoratis sched ~~—Date_ Installment _Principal___Interest___Balance __ ‘omar 50,000 30084 6.000.000 3,700,000 2300000 19300000 3oosis 600000 4070000 133000 urea ih at 30" Selene 2014 is Rs. 4,070,000 |_| Reason: lnsalon cont, ure dating estinaed cos and dowa yt sesayetctes Fete lene eames | lament fas payment wil nt become prt of cos it fe |W] is hoe ewe | (and atl vale ase, _— > @ i : me JTastallment Principal Interest 3755500 | Vives! 1,000,000 1,000,000 iste | Wye? 000,000 "a6aso 7350 j Noncuret ily a 31" December eu aPVOILP+ PV ortRy EVID =[Rentals x S02) , 9 11,000+420 = [4,000 x (eas sg 1420 11,420 . . | Dat Principal _Ieret__ Balance | Tit a a svinit aan gn sina f 260 a sa3 smnzi3____ 003.05, asians | B® 1m case of computer sever ownership (egal tile) will transfer so depresie over | wef life i 6 years. In case of machine ownership wil transfer so derecite over __| shorter ie. 14 years, ) | Calculation of Reatal Income 1 Vina 16,000 | si/ianoit 10.000 | 31122012, 14000 31/12/2013 s2.000 | syiaaois “Tova ese payments | Lite Lease Term ‘(Ty beeause rental ar nomial oy } Mi tn a overt lr ew ie er err 6 yeas. Caleulaton of Carrying Amount of Asets Costas Tes Asami Depeion (e963) _ aoa) sot a] =v LF VAPOR 1 - pene fron x SES) 000400077 1688 ! | 1 eae = - VaR — | 198,754 200,000 - 2,000 (1 + 0.07) isa : | TY of FPO 1 s a8 a 094361297 ogo | +8%)* | Oe Rs. 30 - ~- “4 [* [eas [*CHAPTER? i. {(@)_| Gross include interest therefore (@) is corect answer. 2. (@) | (W-1) Calculation of Net Investment | Rs = Dow payment + Rental x [1-(1+i)* }+GRV x (1 +i)" 39.55 i million =55 + (20% 1-(140.1614) + (10x (10.164) 0.16 | =Rs. 67 million (W-2) Lease Amortisation Schedule Date Installment Principal -_Interest_ ‘Balance 178 a | Wns. 550 5.50 : 6150 | 30/6119 0 10.16 9845134 26 1.79 821 39.55IFRS-16: LEASES (cuaprenss —_————S ast TERNATIONAL FINANCIAL REPORTING STANDARD 16 LEASES 1, BASIC CONCEP dss the accounting rentmen of Feased ss inthe anil attemente of lees wd ese A ect part of that ih the unde Rat part of conc tht conveys th sight ah asst (he unering ase) fra prod ‘of time in exchange for consideration, ™ aaane rey that obtains the vies LLa A ctsine he right fo se an unite ast for # prod of tine In exchange Consdecston me susie fea roves height ea udeying ait or # prod oF ie in ethane conidersion. underying sss, together with bts: Te ease hence rearonaly ceri 0 exercise: ad eta see i contain athe wl ner ‘S.Lense term Fr abe period for which lesse asthe righ to sean 2 pero covered by an option to exten 1 peveds covered by an option to ermine sical concep fist that how present vale is calculate ite year Caleulate the preset | Present value =10,000(1-4", | 000 X (140.15) | m8 Example uy na, 10, 00a heed 5 ea Caleiae te pee ae hers 12% pe annus ‘Solution: * Frsmaie = 1000004 (10, o.oo x02 256783 rillion is 10 be pad at the end of each year for four years sting fom Calelate the present value on O1 January, 2013. Example} Installment of Rs. 3 31 December, 2013 Interest ati 19% per enum. ‘Solution = Present valve Ee | 900,00 |CHAPTER? = 300,000 x FRE] = 8,564,935 Example fel of 3 min soe pian at een chr rye fon anny 2013 nes es 1 pr ana, Cal he rae len Oa fonoh) ve ae os Pre vae = 0000+ 0080 222°") = 800.000 ~3.500000 080-) = 20,223,742 Examples Installment of Rs. $,000 ist be paid annually the hspnng of each year fr five years string oe, ‘OVOLOS. Interest ate is 25% per annum. Calculate the prsent value on 01/01/08, Solution Present value = $,000-+ 5,000. = 5.000 + 50003 | = 16,808 Example6 FARRIS sined on January 01,2011 fr thrss yeu. An nmount of Rs, 10,000 is payable athe end of ‘rat year, Ra 20,000 atthe end of second year, 30,000 at the end of thtd year. The interest rate {mpl in he lease is 10% per annurm. Calculate the pesent value on January 01, 2011, ‘Solution : : Present value = 10,000 x (140.10)" + 20,00 x (1+0.10)* + 30,000 x (140.10) = 9,091 + 16,529 + 22,539 = 48,159 Example] ‘tease was signed on January 01,2005 for five years, Annual rentals payable athe end ofeach year ‘Rs 12,000. An additional amount of Rs, 5000 also payable at the end of fifth ea. The interest implicit inthe lease is 10% per annum. Calculate the present value on January 01,2008 Solution Preset aloe =12,000x [829° «5.000% (14)* +5000 (1 +0.1)* = 45.489 43,105 = 48,594 _(CHAPTER: JERS-16: LEASES ‘Llneeption Date je ele of he ate of lease agreement andthe date of commit ee Pe Fiod conditions ofthe lease mt by the ps the prineipal Bonomic Life: Ete the peviod over which an ase is expected w be economically wstble or the ‘umber of production or similar nits expected tab tsned free act atl Lif: The eid over which an ase i expected the salle foc ate by an ently; or he ‘umber ofroducon or similar units expecedo be obined roman seb ane 10. Lease Amo hedul Jn eat, ech instalment paid by lessee to lessor include: ‘Payment towards principal and + the amount of interest. ‘This is being tabulated year wise in an amortization schedule ‘Mic sah periodic payment iste made the principal decreases therefore in schedule interest foreach next year wil show a diminishing pater Bet description 7 | bewse insalienis are paid imarmears to sis ‘on annual bass (Refer Qf | of ime Practice set _ ‘ease installments are paid in advance In this ‘on anna basis (Refer Qt 6 of Practices You pay the fst italien, i TncTades| veto principal idle when you pay de Fis instalment, W does not} et because the payment is made immediately atthe time asset is acquired under lease Cemeialinei spd nn ie sae you wil fe making bur perme WFO SNE bss Refer Q#13.0F | Assming lease tem is 3 years you wll make Id geyrens Frater) tn this cae if annua interest rat is given we wil conve ito | quater interest cate by dividing pr ann ier rae wh 4 Note: Same ule applies fr bi-annual or monthly payne, omen fiat stinets whe | Where acouming peri and lee Yeoman ae Secounting year and ese ptig are Prepare amortization schedule onthe basis of lease period and ‘ren Refer QF 15 of Practice et) | pot on the bass of eur acouing yearend For example, lease term starts on I April 2015 and our ‘accounting year ends on 31 December 2015 we wil reord fist ‘annual payment in our lease schedule for period covering fron 1 April 2015 0 31 March 2016, ‘A Tease may be pli Pstog). The ret of il extend he per into primary period followed by an opio to extend for furter period (secondary Secondary period may be small or may be zero. I iti reasonably certain that lessee "ed than secondary period will bea part of leat period. acHarreR2 JERS.16: LEASE [LEASE AMORTIZATION SCHEDULE - EXAMPLES Example$ Fat as signed on January 01,2011 for five years. Annual rentals are Rs, 10,000 payable in aran, aloe ofthe equipment is Rs. 32,743, The interest ate implicit inthe lease is 16% per annum, the present value of LP. 1). Prepare lease amorization schedule. ‘Solution 4) Present value of LP = 10900 [==] sn «| 2.743 bb) Lease Amortization Schedule Pate _Tstatiments Pio aa i sie aa 10,000 5239 pram sui 10,000 a7 2499 3123 10,000 3.393 16052 suns 10,000 25368 5.620 mais 10,000 1380 0 Example? Example signed on January 01, 201! for five years. Anoual rentals are Rs. 15,000 payable in areas fais value ofthe equipment is Rs, 57,00, The interest rate implicit in the Tease is 12% per anu Required: ¢)Caleulte the present value of L. {Prepare late emonization schedule Solution ° nae e = 15000 e024} = sao ‘We will ecord aso at present value of LP Le Rs. $4,072 |avait 15,000 asi 69 $5.61 suai 15,000 9isia ; 567 36.008 3ui23 15,00 oer 4323 28351 juina 15,00 l19se 3042 3 r 13393 sins 13,000 1a39 607 0 | ‘Aeaie was signed on July 01,2006 for sx years. Annual rents ate Rs ble in arses. Fir ‘alu ofthe equipment is Rs. 86,000. The Rs, 20000 payable r interest rat implicit inthe lease e114 per anu, Requlre 1) Calelate the preset valve of LP 1b) Prepare lease amortization sehedle leant 2) Een ale ot 2m 00x =") = 2900 x [232° = 84611 We will ecord asset at present value of LP be. Rs 86611 | Lee ameriatn Seedale c Tastallments Princip Interest oe 00607 20,000 10.683, 9.307 sa0608 20,000 869 ani 30609 20,000 17s 825 30610 20,000 14504 sam sana 20,000 16232 3.768 3angi12 20,000 8018 982 ample A lease was signed on January 01, 2000 for period of four years. Annual roils are Rs, 113.2729 Payable at the beginning of each year, Fai value ofthe equipment i Rs. 49,000. The interest rate Implicit inthe ease i 9% pe annum, Reguired: 2) Gilet he presen value of eeeTFRS-16: Lease, (cHapren; i —, iuion 9) resent value of LE euparay sary [EES anno Aaa Ament oN nia terest Bate Ta co tins = sams anaes am winger iinams— eran M4 times: isa Ssa5983 " tnaees = thname——tospno1 Examplest2 ‘A lease was signed on July 0, 2000 for perio of four years. Annual rentals are RS, 12,500 payable atthe begining ofeach year. Fair value ofthe equipment is Rs. 42,014. The interest ate implicit nthe easels 13% per anu, Required: 4) Caleulate the present value of LP. ©) Prepare lease amortization schedule Solution 8) Present value of LP = Rentals + Renae x =2*Y-) =12,50 12.500 f= | cant ) ae a ap , i lp Interest a 7008 asep os vo701 12,500 8.563 ass! vies 30) Sy oa 1 1y07103 12,500 ig62 2m ‘ |Rd gure JERS-16: LEASES. (BE asctonolovinguma se cases an asset on following terms: eer SE rete 4 years rete yo, 206 |e in ade Tae 8 Leena ame er core Tos Required: le he eet va of? 2 eee amoranton hte ‘Soluion 3) essent value of LP Down payment + Rentals + Rentals x = 5,000 15,000 + 15,000 x $7303 ) Lease Amortization Schedule Date Testaments Interest T006 — 712006 (15,000 + s,000) : vvn007 15,000 3.730 2008 15,000 2,603 2009 15,000 1364 Examples Siu Co: eases an asset on following tems: Frirvalue of asset Rs, 324,868 eer 6 years lacepion of ease Sanuary 01, 2006 ‘Aol payments in arrears = Rs, 70,000 years Rs. 20,000 0% wn payment on 01 January, 2006 Interest rate See 2) Glas he present valu of LP © pie ate tnorizaton shel a) nee ‘essen value of LP = Pown payment + Rentals x : ~™00+ 70,000 [F=8886r*) SS aDate 17666 i006 20,000 20,000 . S11206 70,000 39,513 30,487 31/12/07 70,000 43.464 26,536 31208 70,000 7811 22,189 31012009 70,000 52,592 17,408 aunno 70,000 s7esi Sumy 70,000 63637 5 ik ie eases 0 lowing tems Fair value of asset * eect Ieee Arm paymens inavane Fat ment eed heed of as tm aces ae eee ae 3 Sitcom , — Rens Remax ELE 9999540 £22,000 + 22,000 x [EG*2) 10.060 x so.tiy4 aa FESS] 00.0 2) Lease Amortization Sched Date nga i oe ee oe win ae aaa ws "1 3 é ; Se Am e ss is 22,000 17,051 4,949 7838 1/2009 22,000 18,927 4 aJFRS.16: LEASES CHAPTER op LEASEINTH .NCIAL STATEMENTS OF LESSEE aoa esr rie performed in accounting of leased asset in lessees books Following steps ae —~T Recording of Tin the books of right of use asset is carried on the Balance Sheet ws 8 right of use asset_| Non-Current Asset. and simultaneously we record a Lew record interest expense and reduce eash as Well Recording of | It will be discussed later sonding of right of ue asset inal Rei of the ngct-se ste shall compris: (a) theamourt of the inal measurement of the ease ibility, [Ina mens lee ably preserva of TERE TN xed payent ss any eae incentives ii the exree price of purchase option fi expected that essex wil exercise option; and ii, penalties for terminating the leas, ithe lease erm reflects the lessee exercising foption to terminate he lest. | iv, Guaranteed residal value | the teat payments sal Be disco sing the meas rae implicit the lease, if | that rate cam be realy detenines. “not be readily determined the less Shall use the lesse'sIneremantal boring rote. (The rte at which lessee an borrow |ineenta finds) (b) any initial direct costs ineureed by the lessee: and = Tecremental costs of obtnining «lease tat would not have Been Incurred ifthe Teas Bad | not been obtained ‘Any inital direst costs ofthe lesse are aed tothe amount recognised as an asset (Refer Qi 62 of Practice Set) | Typical nil aiet cot of ese includes = Commesions + Legal fees + Costs of negotiating lease terms and conditions Costs of arranging collateral Payments made to existing tenants to obtain the lease i ‘A company entered into a lease agreement Legal advisors fe is Rs 30,000. Our own ‘manager also spent 15 days on lease negotiation. His monthly salary is Rs, 100,000, Required Calculate IDC? Solution IDC = 30,000 | Managers salary is NOT IDC, because he must be paid whether he amarge lease or no ‘estimate of costs o be incurred by the lesse in dimanting and removing the ‘underlying asset and restoring the site on which it is located. © Note: Sometimes in a casei ie meta aan cease lessee conclude that lessor has “substantive substitution right™. Then in thi lease and lessce will not record any asset TT(CHAPTER? AS Example "ABC Li enters into a5 yeur contract wit a eight cater (XYZ Ltd) to transport specified gy | Seog, XYZ La ses as of parca sei | and has a large pool of simi rail en Ean be wed to fulfil the requirements ofthe contract. The railcars and engines are sored at XYZ Lt — ee Tihs ease, because: 1 thera cars are stored a XYZ Lid. premises, ‘+ ithasa large poo of similar il ears and + _substiuion costs are minimal | aberetore, XYZ. Lid. substitution fights are substantive 2 ‘Subsequent measurement of right of use se: [Ale the commencement date, leer shovid unless it applies ether ofthe measuremen’ mode's deserve ben Cost mode! ‘To apply a cost model, lessee should mssun depreciation and any accumulated inp the lage transfers ownership of te we coat of the rightafuse eset tells that she depreciate the ighcoluse net fiom he corn ‘Otherwise, the lesee should depreciate the set applying acest model, the end ofthe useful life of the righ-o-use oss sco he lease term, Revaluation model TMrightofuse assets relate fo 8 class of propeny, plant and equipment 10 which the lesse apes revaluation model in TAS 16, lessee may elect o apply tat revaluation model to all ofthe righote sets that relate Journal entries to that class of property, plant and equipment premises when they ae nt being used to wansport goods. Coss associated with substituting the ran | ae minimal for XYZ Lid 4 thearangement “does not contin a lease ptofiuse aset at cos less any accumulated «lessee by the end of the lease erm oi he 1 exercise a purchase option, the lessee shou ‘iif the end ofthe wel he fhe underlying ts fom the commencement dt to heer ve Fellowing are the journal entries in books of lessee incase lease installments are pad in erears anit Journal ent a Taos ie Leased ibility | L (Recording of leased asst) _| 3TRDO1S = Financial charges ‘Cash (Payment of lease ability and finance charges) = &cHAPTES IFRS. 16: LEASES (aT Depeiaog ‘Accumulated deprecation “ 2a Parcalars T2015 ‘Leased Asset Dr | Cr. Leased abitiy * (Recording of se) * THaoTS PLease ity Cash Lo (Payment of lease liability) ta STIRS Finance charges (W"1) nce charges payable (Recording of financial charges) STIRIOIS | Depreciation ~ - ~ Accumulated depreciation (Recording of depreciation) {| | | ‘3 Purchase option Guaranteed resi! et: 5 far we have discussed the LP in a very sing srarters tothe leste athe end oleae em way Actlly in leases sometimes the ownership ins lesee return the aset wo lessor atthe end of ese term, The LP in both of these cases wl occas inf iflerem wey as cused below Less incase of Lessee | ‘Owmerhip is expected to ‘Ownership ina expected abe transfered to lessee transfered ese ‘Down Payment + Down Payment + Annual rena remalteea v * Guaranteed residual value Purchase option Purchase option Lester omelnes give eae an opin to prchas the ast tend fee m1 anon 1 be exercised it will be included in calculation of lexse Pay Did by lessee to lessor at end of lease term. (Refer Q-14 Practice Set) aJERS-1 H LEASES cHaPrE ‘$. Guaranteed residual value ______-__- > eggor thal the value of an asset atthe end of a sis Sy a pany unrelated to The Lessor that th inane ieee vl be at asta specified aust. —_—_—_—_ rand of lease Wins Te ry, | a at is to be transferred (revert fe ‘When 8 er abso hoe the asset because it will not become the property of lessee at end of leg AN the start of lease term. IF at end of mit vs pected than iesee wil ull the shortfall by paying amount in cash (Refer 16 Pratice Set) 6, Extracts from the financlal statements of lessee Statement of Financial Position ‘Asat 31 December, 20X5 Assets ‘Non=current assets Right of use asset Liabilities ‘Non-cutrent labile ‘Obligation under lease ‘Curren iabiiies Current Portion of Obligation under Lease cS Finance charges payable Ps statement of hensive Income (Extracts o For the year endec 0X5 2010 Depreciation Expense 7 Financial charges zi 2 Acer thal disclose information about is leases for which itis a lessee in a single note or sepait presented cecorancial statements, However, a lessee need not duplicate tated an eect Dette evbet inthe financial Satomi, proded tare formation is incorporated by ross reference in the single note or separate section. about leases, » mounts forthe reponing prio ) erinanae eines conga (©) the expense relating to short-term I 8. This ex; im lent ih see en ales As ‘Pense need not include the expense relating (Se pense relating to teases of ow value sats income rom ubletsing rights {) —Waleahoutow fran 265 5 Atos to right-of ue see (0) ins or lose rsing rom ela each ©) Re aig anout sf ehet ase wane naman8 gygrtsh2 ——_____ pis-16 eases octal oid the disclosure pct in prgaph 53 na ler oma sto ge. The ots Sita en a neo a te epg pn vee measures FBh-OF-USe asses at revalued amounts applying isa tas Ter segs nS te ee al scone esse hs included inthe earrying (ne ace sent the ight-c ast can be presented ier separately on te se ie te in oat gma pel nee eee an mock athe ea me Inte statement of profit or loss and other comprehensive income, the depreciation charge ofthe right-of {Be act is presented in the same line iemvtems in which similar expenses (sch at dereciaon of| rope past and equipment) are shown, The imerest expense onthe lease liability is peseted as pat Erfnnce costs, However, the amount of intrest expense of lease lailites has to be disclosed inthe oes. Inthe statement of cath flows, lease paysus we classified consistently wih payments on ofr inane Tiaies 4 The part of the lease payment th sesso cash pment for the principal portion ofthe lease Tibi is presented ata cash ic” og “ots Tnaeing activites. 4s Thepurtof the lease payment tha sores" erst portion of the lease nb is preted ther ae apeperating cash flow ora each fw revi fom financing actives (im accordence with he ‘nttys accounting poliy regarding the prescration of interest payments). «+ Payments on short-erm lasts, for leases of low-value assets nd variable lease payment not Tncluded inthe measurement of the lease lability represented as an operating cash Now. smptions in cas of eecrenenaeraerte apply the requrements to recogise and measur the rightone the leased sci bi 2) short-term eases and {lees unc ne underlying ase is flow value (or example lease of fnitre or computers and sop) 1. Shores ieee hart ommencement date, bas & fase ter of 12 months oles. fase hat cons rca option is ota shot em ase, (ven itis fo 12 months oe) Bamiet ‘Short term lease (Less than 1 year) |e see sequied car for 9 mens ona Tease at Pass the Jamal entry. Solutions monthly rent of Rs 10,000, Journal Entries Particulars Rent expenseCHAPTER2 HRS 16 Lea, eT irene Example? —— Lessee and lessor enter into 5 years lease both ean cance the lease atthe end of any year. Name the type of lease. Solution-2 tis short tem lease Lessee has entered into a lease of 9 months with a purchase option atthe end of 9 months Solution-3 ‘As there i a purchase option therefore it is nota short term lease, Example Tessce ABC enters into a 8-year lease with DEF (lessor) of # machine to be used in manufacturing of pars fora plane. The cost to install the machine in ABC manufacturing facility is not significant. AB End DEF each have the right to terminate the lease without a penalty on each anniversary of te le | commencement date ‘The lease term consists of & one-year non-cancellabie period because both ABC and DEF tae s substantive termination righ ‘ABC and DEF have a substantive termination right because “both an terminate the lease without penalty “and the costo instal the machine in ABC manuféctring 2: = significa ‘Asa result the lease qualifies as the short-term lease. _ ‘An-asset can be of low value if the lessee can obiain benefit fram use of asset with own resouts avsilable to the lessee (means can be purchased by lessee itself) For example lease of furite a laptops etc. Low value assets (furniture, laptop, computer) Lessee acquired a laptop on lease for 3 years on 1" January 2012. Rent payments fo be made on 31 December each year areas follows: 2012 10,000 2013 72.000 | 2014 15,000" Lessee will record expense on straight lin basis or on. ‘0n another reasonable basis 31-12-2012 staan ia 31122014 1 = Expense (37,0003) ws |2 /\) cuarTel ‘ ee [sonra Ents —— | [Due Particulars [31-12-2012 | Rent expense Rent payable Resipababie | Ca SIGOTS | Rent expense 31-12-2013 | Rent payable — - 12393 Ta07 Cash STTEROTE | Rent pense — ae Rent payable ') | [31-12-2014] Rent payable ee | 15,000" a8 A Cash I 15,000 | ‘ br. Ret pasate e | SUABI Caso pag anne B22 eld 2.333 | 31/12/12 Rent expense sua. Cash TROON avian be aia ea 666 SIDA Rew expense aunnia Cash Baya ve auine oa a Rent expense Example-2 inthe pharmaceutical manufacince end distribution industry and has the fllowing leases: 4+ leases of realestate: both office building snd warckousee + leases of office furniture; * ete: of company cars, both for sles personel and fr senor management and of vying ua, ‘specification and value; + lenses of tucks and vans used for delivery; and ‘leases of equipment such slips. Required entity whether the above leased assets ae of low vale asset or NOT. 2 eats of office furniture and laptops qualify forthe recognition exemption on the basis t underying assets, when they ae new, ar of low vale. : However, lesse should apply the recognition and measurement requiremens in IFRS 16 tits leases of "eles, company ear rks and vans the 1 Examples Eratity A leases office equipment for S years. The total value ofthe equipment when new is Rs. 5000 (Getermined by Entity A to below value). Enty A elects to apply the low-value asset exemption, ‘Lease payments are payable as follows. Year t Rs. nil (rent-free period) Yeats 2and 3: Rs. 1,750 per year at the end of year Yea; Re 130 per gear a he nd opr | The ees bent under the eer on sili bas veh fetter, aCharrer2 Required: Se . 2 paren ie art es yas ee 3. Disclose Year2 nthe notes ote fn saenens along Tl pens 0 + (1.78022) + (150032) = Rs 630 Lease ter: 5 years {Lease expense recognized each year: Rs, 1,300 (6,500/5) Date Particulars = SI-IEVET Rent expense Rent payable _ SIIEVE2 | Rent expense Rent payable _ STEW? | Rent payable | Cash STENTS | Rent expense ent able _ STEWS | Ret payable Cash a Dr. Rent payable a. “MID Cagy Rey SVOWNAT bie BuiaiYA ed 1300] 31/12/¥¢1 Rent expense 13 SAY2 Cash, 1750] 31/12/¥e1 wa L-1 BintYR ed $50) 31/12/¥2 Rent expense ae SUIZYES Cash W750) 3123 We 7 BUYS ed ‘400 Rent expense a Examples Covering a pes of awlanee private limited ac *Nt loving dain se ned 3*beemner apse Alifferent lease agreements ig assets during year ended 31 December, 2015 cored ease co on pase term, Laptop anuary 1.2015 - = 3 years aly i ae, — Pameyianis EK ay nag Rs. 20,000 per month ee JRa cuanrst JERS-16: LEASES required 1) Pass jourel entries for the year ended 31* December, 2015, t)_Extact of balance sheet end statement of comprehensive for the year ended 31" 2015. a 4 Set assteationescussion from lessee viewpoint Tel be conser as noma eee by ene whi set we eae by este in which he wl prepare amortisation Lapp Tes low value asst 0 insead of recoding it ata ase we wl jst cond e ‘expense on straight line basis. * ae = hor term ease a itis oa prod of es than 12 month 0 nted of recording as asc we wl ja een expen © urna entries for plant [bate] Parteuars = Le Tis] Rio we ae Lene W-1) _ msi? SUE Tas are Finance hares ne | s,a00 SUAS Fas [Eee rece [Due —| ‘31/215 | Rent expense (W-3) Rent payable ‘31/12/15 | Rent payable (W-4) Cah om orsenarator aa Date [Parca — ae} = ‘SIAVIS | Rent expense : { a Cash 20,000 ‘WUT | Rent expense 20,000 Cash _ 20,00 (b) Dawinnce privat ited stement offinancialpesition ‘ava "December, 2015(83tras) Rs -curent 49201 ‘Right of use - plant ( 223,817 ~ 74,606 ) tea ease aby = plant Current portion of lease liability 98 81,819 74380Dawlance private limited ‘Statement of comprehensive income For the year ended 31" December, 2015(Extracts) — Degen on BOL - Pn a teetmyn a Revewene’ Linen \ een eae 3 ee 7 usar Present oe mens 900005 222" = asi7 V2 Lens amoreaon schedule for sant De inatnen tees nas Sings moon nan tin 3inane Soon ao ‘ty Bait Suoon ater ows, “1 " B sums 2a Sinaie ian sunat _ is Tt & et Exper (sms) ie ow) be eat paste Prep reat ® a BINDS Rent expense st i _TERS-16: LEASES. cuaPTER2 Or 3E IN THE FINANCIAL STATEMEN ss steps ae being performed in accounting of leased asset in lessor's books. Follow SS LT 7 [Remove the asset] The asset is removed fom the books of Tessor by crediting wae fiom lessr's books | account and debiting lease receivable, The lease recinable is recorded FT Receiving lease | As and when we receive the Tease tstallnent, we reduce our Tease installment | receivabe, record interest income and increase cash | paste Payments (CP) will be ealevlated by lessor in the same way as discussed above, However ‘Te Kees in question you wil be given unguaranteed residual value (UGRV) as wel (wl be discussed Tate “Some important terminologies for lessor areas follows J Gizs estment inthe lease (Gl) isthe aggregate of: Ma The lease payments (LP) receivable by the lessor unde a finance lense, and (0) Any unguarenteed residual value acruing 10 the lessor Ip except tht it includes un-guaranteed residual value as Jn nut shell the gross investment is same 25 wl Geos invesment = LP UGRY heave i the Fease. We will Fen auc of oss imvestns= cost atin the ese, We wil ieetrtetion chee with tis 8° : vaive of UGRY ‘Net investment = Prescot += ‘Unquaranteed residual value (UCR ‘Unguaranteed residual value is that portion of the sos ‘+ isnot guaranteed buy anyone or saranied by lesee than 3 s UGRV ‘el, the realization of + is guaranteed solely by «party ee Example [question say residual value is Rs. 0 and Rs. 718g ‘Example: ‘Eames entered into leasing contact to lease an asst fram Number Lid ‘The terms of lease are: Fair value of asset = Rs. 110,721 ‘Lease term = Syears Inception of lease = 01 October, 2006 Down payment on 01/10/06 =Rs, 7,500 ‘Annual rentals payable in arrears = Rs. 25,000 Residual value (guaranteed) Rs, 3,500, ‘Unguaranteed residual valve = Rs, 1,500 Interest rate =8% Required: Calculate the following: ') Present value of LP by Gross Investment Net investment 7CHAPTER? a ‘ay Calculation of PV of LP . psig’) + 3.500 (01707 = 7,500 + 25,000 x 7500 + 25,000 x [1=(120.08)"} +3500. (140.08) 0.08, | | = 108,700 | (o) Calculation of Gross lnvestment P= Unguaranteed residual valve $09 + 25,000 x $+ 3,500) + 1,500 = 137,500 | (@) Calculation of Net investment |e Cateuttion of N a investment = PV of LP + PV of Unguaranteed residual value | Net investment =7.500 #25000 [= (120.081) * 350087 0.08 L = 110.721 S00 5 (1+0.08) Finance lease inc 2 = (Ownership is expected 10 {Ownership is not expected transfer to lessee | be transfer to lessee) eer Gi=LP+ UGRV or LP= Down Payment + Annual LP Dow Payment renal ual retal> —o ‘Guaranteed residual valve [N= Present vale o y NI a= Pes value of LP i= Present value of P+ PY GRY =(CHAPTER? mesic [Partievars = De] Lease receivable I) . — = Asset “| CPransfer of asset unde finance lease | a7 Bane aan | Lease receivable Finance income | Receipt of ease eeevabe and finance income) | ee | | ries fg the Books of vance (bate _T Particulars = ——— EN] VW08 [Lease receivable Wy a ‘an ——_| crane set ner ft ne W109 | Bank a Lens cable (Recon est of ese i STAND | Fane nce cea sneer Recording of Finance income) 20xs. Assets Non-Curentassets Lease Reveivable « ‘Curent assets ‘Curent portion of lease receivable Finance income receivable L Comprehensive Income (Extracts on or the year ended 31 XS 20xs Finance income = 8. Disclosures: ‘A finance lessor must disclose the following (2) selling profit rss, (©) nance income onthe net investment inthe lease; and (©) income relating o variable lease payments not ineluded inthe measurement ofthe net investment in the lease. (©) &reconiiaton between the gros investment inthe lease a the end ofthe reporting peri, an the ‘resent value of lease payments receivable a the end ofthe reporting piod, (©) the ros investment in the lease and the preset valu of lease payments receivable atthe end ofthe reporting period (©) neared fiance income; (@) the unguaranted residual values acnsing tothe benefit ofthe esor, =?TERS. (CHAPTER. Lease (oy he scumulated allowance fr uncolleible. tease payments reoeivable 1 contingent rents recognised as income inthe periods Soper description ofthe lessor material easing arengement 2 Ait analysis of lease payment receivables ive explanation of the significant changes inthe ‘A lessor shall provide a qualitative and quantitative expl rf mee mount ofthe net investment in Finance leases " ‘Alessor shall disclose additonal qualitative and quantitative information abouts the nature of the lssor's leasing activites; and {how te lessor manages the risk associated with any rights it retains in underlying assets. In parca Tesor ahall disclose its isk management strategy forthe sights it retains in underlying aseg Jnlading any means by which the lessor reduce that risk 9 nil Direct Costs In case of Lessor Finance Lease (ater han manufacturer and dealer lessor) IDC is added to inital measurement of finance lease receivable and the result willbe that Net Investnew in lease wll nchade amount of IDC. (Refer Q3 63 of Practice set) 10, Moving Forward So far we have discussed only simple lessor, means a lessor who Quy the asset from market and thes leases fous. Sometimes in exam you face question whois dealer o>» rarsTatare Isso, Following axe the diferent types of lessor. Lenor ‘Normal Dealer Manufacturer Lessor Lessor Lessor (such as banks) (ch as shops on jail oad (such as Honda Atlas Cas) Lahore) q ‘Manufacturer or dealer lessors records two type a incomes: ‘of | Time of recording Explanation — —~7] ait Profit onsale q Recorded a ie soods time of sale that in perpetual system aoa ‘Vou mig remember ‘of sales made thro other i 1 Sales recorded at lower of: the far value ofthe asses, Fy / EE Sep Rssouing of cat of tes a“ame Rodeo a rae nas [ren Tras Restle Corot sles (Cost-PV of UGRV) [On sales (Lomer of FV or PV of LP) Inventory (Cost) x par Incase of manufacturerideaer lessor the inital direct cost i expense out in the the year assets sole |LOs: LEASE CLASSIFICATION FROM LESSOR VIEW POINT Sofirwe have ony discussed the finance lease from leases fom pot of view of lessor IO nance Lease and 2 Operating lease Finance ese is lease that ansferssubtatly a tstetto the esse. Title may or may not evertaly be o> “Siuatons that (in viualy or combination) 4) Ownership is transfered to lessee a the endo | 1) esse asthe option to purchase the asset o> the FV at the en of the ease tem (means 1 PO) ©) Lease term is forthe major pat ofthe economic life ofthe ae (major means sty 75% of economic lite, 4 etspectve of lessor. Actually there ate two types of ard incidental tothe ownership of sified as finance lease” sulisienly expected tobe lower than PV of the LP is substantially equal to FV atthe inception of the ese (Substantially means 90% or ore) ©) Leased asset is of sucha specialized narue that only lessee can use it without major modification, anower of any ofthe above pints is “yes, lease will be Finance lease thernise we wil elasity the lease as operating ease, [Reter. 36 and 37 of practice set) ‘LOS: OPERATING LEASE IN FINANCIAL STATEMENTS OF LESSOR Ir the books of lesor the asset leased out i Kept as an asst because the risks and rewards ate not ‘arsed to lessee, Rentals in similar way are not segregated into principal amount and finance income, Toal leas paymens stall be recognized a an income on straight lie basis ove lease term, Renta income on straight line basis = Total LP/No, of installments Dilrnces i siming between cash and accrual of rental income i eaptred as ether aserud income "ose oF deferred income (lati. ‘Dereon shal be recorded in th Books of lstor in at of operating lease because risks and revard Ta ansfered to esse and the asst is sil in lessor books. The deprecation policy for depreciable ised ast shall be consistent withthe lessor’s normal depreciation policy fr similar asses. "psrment est wil be performed as pec IAS 16. -7I¢—_—cguuprmy ming ele income relating to variable | ee ne Se ec eer ri Spi dS Terma, ules another format i more approprite. ta Ineo hiv he dle bese, or sha cows Guiae ad ag Information about easing activities. + the nature ofthe essor’s leasing activities; and ‘How the tess manages the risk associated with any rights it retains in under articular, lessor shal disclose its risk management strategy forthe rights it reter ‘assets, including any means ty which the lessor reduces that risk. Such meons ‘zample, buy-back agreements, residual value guarantees or variable lease pynnen of specified limits, a do infomation ia, Wt mot Hitt, infront es eof ag, ier (a Direct. [ LI [esas Para [ Macufctuer-dealer Lasse ——— [3 Mantels Ts [4 Lease clssifctiog [3 Spring Lease [se cet ag 2 | Giese eee raSTHPIET Over 6 years co the sgh 2 Pp te jour eres for 2005 in Company Ag ») Prepare exact from seme i poicon eats of fnancil posi ; wo the nana pan il ostion svat St December, 2008 Prepare nates to te femens fo the year ended Dern 2008 ouestin:2 O81 APL 208. Bish Co extents an peemen Sageg AE Pros abe ou stark euch pent 2 hie ht dan eine eof I be retired tothe leasing “Tes om 31 Mach 2010, The machine i expected to bane {as value of Rs. 18.275 athe incepion ofthe “hen calulting snus ena Sea ended 31 Marc, 2010 23] March 2010, Te lr the year aed 31 Mate, 2010, 31 Match 2010 3 pea ts ented ine an arecmer ts esng company, o ei a machine eae yur Tear, ‘Tae tm ofthe agreement. te machine so be made walle w See Pe Garnet praises an immediate payment cf Rs 15.00 tare beaut Riese a Ee OF mews of Rs. 13.728 at the end ofthe yest, The interest ate mplich inthe ka one mht athet pie ofthe machine on I* Jaan. 2001 H Rs $5000, Th cared lie of sch ora a foe Deas. The company has a policy of depreciing the machines of the noe were REE fz yea period on 3 srsigh ine basis tie jure inthe books flee forthe year ended Deemer, 201 (O86! deenary, 2000 B Co. buy 's 2 small bottling and labeling machine from $ Co. under lease. The cash Eile racine was 7710 while he ton ob pias Rs 1000 The specie aces SSEEENE pent ofa Rs 2000 Depost mith ans beige in fore s Satine connercng on 31 December 200. The hag oR 1250 represen ete of 15% per = ‘on the remaining balance of the liability durirg each accounting period. Depreciation ESSE SE el ra ee of 20 prams nb sami eal Sih Onnesip of sti expeted toe rss oles tenes em ig Onsen vont SRE Sc fom sateen of finan poston aon 31 Deeb. 20 (ang comparative) ‘0st the nancial satemenis forte ear ended 31 Decanter, 200HERS 16 LF RAPE sing Compan er five years norsaceibeconract The ase ‘oman The removing at fer iene Coro Tee ee ‘rentals of Rs. 305,409 are payable at the end of each yest 1 Pr joel ets fhe yer end Demi 198 and 1999 «Drow 1098 2 Peper of seme of acl eon Deceit = al statements for the year ended December], 1998 3. repre notes nan ‘nt Api 2009 shaw Co. entered into un agreement to ease machine that hid an stint ig for yes. The ese piso fryer at ich po he asst wl Fela oe ag omy. Annual setals of RS. 8.00 ate payable vn advance om } Apri. 2009" The mea expected have ari esi aa the end of iy ie The chine had Tair val oR Red Heinen of the ease. The lessor inca a irance costo 10 psn when elgg ok rena Regured a) Prepare jurmal ete inthe books of Shu Co for the yer en 5) March, 2010 and 200 1) Prepare enacts rom statement of nail poi seat Mes ©) Prepare exacts rom statement of eampechenie incom fhe vss March, 201 4) Prepare noes othe inane statment forthe year ended st osha Gray Leaking Company signs an agreement on January 1, 2010, fsecaipment o Azure Con ‘he flowing information elses to this egreement 1. The tenn of the on-canclaie las is 5 eats with no renewal option, The equines {stimated concn life of $year andthe company depreciation stig line task ‘The fir vale ofthe asset at January. 201013 Re 90.000, ‘Toe asset wll ever tothe lessor a the end ofthe lene term, ne aeveement requires equal annul retal payments of fs. 20,881.11 to the lesa, began € auaty 12010 3. The ese incremental omowing tes 10%, Required {a1 Prepare an anorization schedule at would be suitable fx (9 repeal ofthe journal ees forthe lense for DUNO oe ston § XY ZLimied (the lessee) enters ino a lease theese isto acquire an asset on lene a ‘Lessor cost ofthe leased property Fr value of keased prope a inetion ion 1-1-2010 Esinuted esnomic Ho eased pores Period of tense Rens able a besining ofeach yar Inplicitateinthetane eo APY grement with ABC (Priv he following em and Teese ei ine of his onned atop straight in basis Seen rrr reenter eeecuaPTER2 SS —,——“‘“‘“ETrt_Cr*tC*sCS*té(‘( ‘ a] wired Regs feulte Present Value of LP, (ca SJoural erties in the books of the Oo ‘December, 2010. lessee for 2010, where lessee’s ‘account 1B year ends on Qucstion-® PER arty ABC 8 Ca 00, 8 yan sa meg ea i RS Fa iO 2008, il ie hn lonens ABC Coeliac eee Rewsired Prepac journal entries in the Books o esse fort forthe year ened 31 December, 205 ni 2 ii) Prepare extracts from statement of financial position as at 31 December, 2005 Os ansane i) Prepare notes to the financial statements fr the year ended 31 Decomb, 2005. SEES aah vale of. 200,00 i eset wih aah ale of Rs, 20,00 leased ose perio ye 1" The ase is depreciated over 4 year toa rest eve 2 Anmeal inalienisof Ro 7,475 re paybic wanes 3. Tae dcont rte interest ac mpl esp ona 4 Thelee commenced on 1 Mar 2002 The "inline ipyabe on 28 Fen 200 and he ancl year OF & Co (he esses) enon Doe Requived Drak the journal entre forthe year ens her 2006, 2006, 2007 al 2008 in she books of lessee. 1 ‘On October, 2008 Number Co entered into sn agecement to lease a machine what ha an etnate ie oF four years. The lease period is lso four years with annval reals of Rs. 10,000 payable in advance fom (October 2008. The machine is expected To have anil esidual value atthe end of is ie. The machine had 1 far value of Rs. 34,869 at the inception ofthe lease. The lessor Includes a finance cost of 10% per ‘annum when calculating annual rentals Required 8) Pepare journal entries inthe books of Number Co forall the yeas. 1) Prepare extracts from statement of financial poition a at 31 March, 2010 including comparatves ©) Prepare extracts from statement of comprehensive income for the year ended 31 Marci, 2010 including comparatives, 4) Prepare note to the financial statem vents forthe year ended 31 March, 2010 including comparatves, ‘Question=t2 XYZ Lid entered into a lease agreement on the folowing tems Frirvaluc of leased asset Rs, 100,000 Lease er 5 years Reni six-monthy in advance Rs. 12,000 Economic ifecf eased asset 8 yeas Inception date I Jana 3 evince! reat 91 December impli finest i api ale 43555 Required x 8) "Prepare joumalenries inthe books of XYZ Lid. forthe year ended 31 December, 2004 and 2005, ®) Prepare enacts fom statement of financial postion as at 31 Desembel 20S ue, 2094 ©) Prepare extracts from statement of comprehensive income for the Yeu enc) 3! December, Prepare notes othe financial statements forthe yer ended 31 Desembe wCHAPTER? TERS-I6 LEAs SCUTTLE “The cost ofthe machine is Rs. 50,000 andthe lease is forfour years. A rental of RS. 4.291 is payahe” Prepare journal entries in the books of lessee forthe year ended 3! December, 1991 Question-14 ‘The following facts pertain to a non-cancelable leas agreement between Lennox Lessing compan, lessor and Gill Company, esse. Inception date January 1,201 ‘Anal lease payment due atthe beginning ofeach yer, beginning with January 1, 2010 Rs. 18294 ‘Bargain-purchase option price al end of lease term Rs. 4.000% Lease tem Syes Economic life of leased equipment 1Osees Fair value of asset at January 01, 2010 Rs. 800000 ‘Lessor’ implicit Rate 1% Required (2) Prepare lease amortization schedule fr Gill Company fo se term, () Prepare the journal entries onthe lessees books related ta ths loos "0 «1 years 2010 and 2011, (6) Prepare note for lease obligation for the year ended 31 Deven er to ‘Ala was signed by ABC & Coon Api 1200 fr ve yeas. Anu renal payable atthe ei of et wee ated at Rs. 5,00. Us I oequpmon as 8 seus enteat ae t ee ease was 25%, a - * o Fair value of equipment was Rs. 17,037. The ke " 37. The las cis a purchase option to be exercised aR heh isower tan mare pie Yearendofeane ebece Required il 2) "Lee aorization seule for nie ese, &) rea joumal eaten the ose of fr -¢) Extracts from lessce's stat seen on — ‘Vance Company, a lessee. selable lease agreement vor oe Residual value of equipment at er oes each Yea begins panes Implicit rate aaa between Leasing Company, a lessor! Thee ut he iin pecan meted ‘auipment. =Reape an amerizaton cede hat woul be stale forthe esse for the lease term, {6 Pep fe ouma enc forthe ese forthe year ended Bese a ° gucstie-17 \ let PAK acquired an asset on leate commencing at Jly Ot, terms of ee FA psf ease ese So eee YO 2UES. Te ems hese es under ) Termof the lease is 8 years 2) The amount of rentals RS 1,974 payable in areas 4) Theitrest rate implicit in lease is 12% pe, 12) Theasset at the end ofthe lease term wil revert back tothe lessor, 1) The Gunranted Residual Velue bythe este associates Rs 00 a the apse of ease term. ‘The economic life ofthe asset is seven years Required 7 Prepare joumal entries forthe year ended June 30,2006 & 2007, {b, Prepar extracts of statement of financial postion as at June 30,2007 slong with omparaives, ay ¢: Prepare noes to financial statements forthe year ended June 30,2007 along with conan i S Questions a = Pari of set = Rs. 66555 “ Dowa payment = Rs. 10,000 "Interstate = 1065 ‘Annual installments atthe end ofeach year = ks. 20,000 Lease term aye (Guaranteed Residual value Required Caleulte the following: 1. Gross investment 2. Netinvestment . 3. Uneared finance income ; Fresh Farms Limited entered into leasing contrat to lease a vehicle from Guava Lid |The tems of lease are: Farle fae =Rs 91591 ior 07 Tm, 208 Icepon fee ) Prepare accounting entries inthe books of Edis to Dn July O1, 2013, Georgia-Atlantic, In. antic 10 make semi-annual lease payments of RS. 68 crm, payable each June 30 and December 31, with the first payment at 31 December, 2013. Th se implicit inthe lease is 10% per annum, Builders used to calculate Tease payment amounts. The fait alue of aset is Rs. 3,500,000. Required ) Prepare a lease amortization schedule ) Prepare accounting entries in the books of Builders Inc. forthe year ended 31 December, 2013 and 2014 leased a warehouse from Builders, Inc. The lease agreement 9,561 over three-year lease 3.CHAPTER? LEAG, {ale Line tease ou vcr on nt 201% Fresh eps Fame wa tcqure e sip of te wcior ae te yes of pyres reserved unde he range ‘rugs was eur Hd opin, Thea (0) Cashel rie of actor (0) Downpayment on delivery © ners (8) Annales in aears 2) “her hjouna ents inthe boos of ait Fine Line feral evan yu, 1) Prepare nts tthe facial statement forthe er ened 30 June, 2002 ngs‘ Limited ihr deer nor a manufacturer. Orange Tie Limited eed ino sera ne uh OaneTiceLined eed aS rng Te Linied purchased the machin on Jenry 2001 at acest of Re 210,00. The ee, leaweand thts of the lease re as los 2) Inception fase: Janay 2001 3) Leste pero} years 6) Lease installments: Rs, 90,00, analy in areas, payble on 3 4) Gunariced residual value 10,00, payable on 31 Beeson» There ate inplic inthe agreement 1s Sei9h, Required 3) rept the joura exes fr al the years, ©) Prepare notes tothe anil sateen forthe year ended 3) Devens ‘inter oF each year, 2001, 21 lease is a finance lease, the ‘terms of which are as follows: Sea " ‘os 8) Inception of ae anuary 2001 5 Lew prs ean ©) Lene stainet Rs 8,0 9) Guaranteed eal ale He ©) Interest np ne Required 1), Prepare the journal entries for the yearend b) Prepare notes othe financial saicrone no annually in advance, payable on 1 Sa 10,000, payable on 31 Deceiver 2 eement:18,7927%, nuary of each year 003; } December 2001 in Pear Tree Limited'sbois Salements for the year ended 31 Dan 00 ember, 2001 Tones a FASE an 882110 XYZ Lid with ello Sesatene t A, wis Ys lowing terns: Inception of lease = Syears Fair value of leased asset = 31 Sanaary, 2005 Lessors rate of retum = Rs. 75,000" oe ‘Annual rentals payable in arears Residual value (unguaranteed)(CHAPTER: er LEASES. eee prepare the journal entries for each of the years en tO ra's books. ‘the years ended 31 December 2005, 10 2009 in Guava + py Prepare notes fo the Financial statements forthe yer ended 31 December, 2005 ‘Question 30 Peach Lid leases an asst to XYZ Lid. wth following terms Lease term Inception of ease Fair vale of leased asset Lessors ate of return ‘Anu reials payable in advance Residual value (unguarenteed) Sail Residual value (guaranteed) Srismeg Unguaranteed residual value Rs 2.000 Present value of URV Rs 1.200 Required urerdealor lessor. Prepare entries in the books of ABC & Co the mani ‘Question 32 Lemon Tree Limited is dealer in machines, which it slls for cash or under a lease. Lemon Tree Limited sold only one machine (which it purchased on 1 January. 2001 for Rs, 250,000), during 2001.The machine was sold under a lease, but had a cash sales price of Rs. 320,000. ‘The terms ofthe lease areas follows: 2) Inception of lease: 1 January, 2001 ) Lease period: $ years ©) Lease installments: Rs, 100,000, annually in arrears, payable on 31 December of each year. The market interest ate applicable i 16.991 1%. Required 8) "Prepare the journal entries for the year ended 31 December, 2001 and 2002 in Lemon Tree Limited's books. 1) Prepare extracts from the statement of financial position as at 31 December, 2002 (including comparative). ©) Prepare notes 10 the financial statements for the year ended 31 December, 2002 (including ‘comparatives), <=CHAPTER: TERS. 16 ery der, leased a machine to Romer COMoation on Jn ond gars equal anual payments of Rs. 36514 ac 43 7 pment reeved on Jay 12011 Waits ha Pachased mae sake 0. Calley of lease payments is reasonably predictable, and a 2010 roan the amount of costs ye 1 e incre by Wadkins. Wadkis atthe yah ie vert of eum, The ache as an economic He of 10 years wih ne ear soca Wadking athe termination ofthe lease. i Required (ay Prepare all necessary journal entries for Wadkins for 2011 and 2012. (b) Prepare notes tothe financial statements forthe year ended 31 December, 2011, ston 33 Padkins Company. & machi “The lease is for an 8-year peri Question-34 ‘Avocado Tree Limited is @ Dealer in Machines. The company entered into an agreement under wig ‘Avocado Tree Limited leased a machine to Giant Limited. “The machine was purchased by Avocado Tree Limited on 1 July 2001 ata cost of Rs. 100,00, ‘The cash sales price of this machine is Rs. 210,000. “The lease is a Jease, the terms of which are as follows: 4) Inception of lease: 1 July 2001 ') Lease period: 5 years ©) Lease installments: Rs. 60,000 annually in advance, paysbie o 4d). Interest rate implicit in the agreement: 21.8623% Required 1) Prepare journal entries for each of the years ended 30 June 2001, 2002 and 2003 in Avoca» limited’s books. bb) Prepare note for recei Question-3s ' Applebee Limited is a manufacturer of harvesting equipment. Applebee Limited sels he ei farmers all around the country, Some customers purchase the equipment for cash and ots July of each year. ble under lease for the year ended 30 June, 2003 (including compare) under Applebee Limited's lease agreement. i ‘Mr, Hatfield purchased a harvester from Applebee Limited and made use of their fn agreement. ‘The details ofthe lease areas follows: ‘+The lease period is 5 years (signed on | January 2005) + Lease installments of Rs. 200,000 are payable annually in arrears on 31 December ‘A fair market interest tate forthe typeof eae is 16991194 et Ti cost to Applebee Limited to manufacture tis harvester was Rs 500,000. Apple implements a mark-up of cost plus 28% on their cash sales. Required = at! a) Prepare joumal entries for each of the year ended December 31, 2005 and 2006 " a ') Prepare notes to the financial statements for the year ended December 3 26 ‘ ‘comparatives) | ———_____—_ 4[perception ofthe Tease of fs. 138,000, an ec {et the anual rental fo €ar a rte of return of 1 fot iranefer title oF contain a purchase option, Require: How should Photon Company clasty this lease? Useful feof 8 ears nd esd! value. Pon 10%, and this fact is pete known to Cal Co Waterworld Company leased equipment ffom Cost qu etal payments of Rs.43,019 at the begi inception of the lease of Rs.150,000, propriate interest rate is 10% The ov eae tem, Required: How should Costner Company classify this ease? tne Company. The lease term is 4 years and requires ing of each year. The equipment has far value atthe fan estimated useful life of 4 yeas, and no salvage value. The nership of asst willbe transferred to Waterworld atthe end ofthe ‘Question 38 Advance-+ Annual + Decree) MNC Lid. entered into an operating lease conract with HTL Li, The tems of th lease contact ae Far value of asset purchased om 1/1/09. Ro. 20.000, Commencement of lease ary, 2009 Lease term 3 vat ‘Useful life 8 ‘Ansual rentals payable in advance = fs, 000 vith S¥ reduction annually) Required Prepare journal entries forall he years in is of FTL La. (lessor) assuming yearend ie 31 December also prepare note fo receivable ses operating lease forthe year ended 31 December, 2008 Question.39 (Advance + Annual + Decrease) FFinioff Ld. entered into an operating lease contract with Bell Lt The terms of the lease contrat ar: Fir value of asset purchased on 1/1/05. = Rs, 10,000 Commencement of lease = 01 January, 2005 Lease tem =A years Useful ie 8 years ‘Annual rentals payable in advance are: +1 Jan, 2005 Rs. 4.000, + 01 Jan, 2006 Rs. 3.800, + 01 Jan, 2007 Rs. 3,600, = 01 Jan, 2008 Rs. 3,500 Required repr jural entries for ll th yar nthe boks of Flin Ld, ess) assuming year en is 31 Deen ao prepare efor ecrvable nderese rhe ear ended 31 Dect 206, ‘Question-0 (Arrear + Annual + Increase Bate inde is apening te wh Fd Lindon 1 ny 200. Fon Limied agreed to lease plant ffom Banana Teee Limited (which tad cost Banana Tree Limited 5 300,000 1 Sanary 2001) onthe fllowing terms: 2 ception of ese 1 Sanuay 2001 ©) Lease period 3 years =ERS CHAPTER: Ly aa ecto inthe years ended 31 Dezember 2001, 2002 and 2003 cout 2) Inception of lease: 1 July, 2003 ressel nn ‘Quesion-2 (Advance + Annual + Increase) GGL oered ino an operating leave with FL Lid 091 January. 201° 1. Limited agred tect sat fom GLL (which ha cost GLL Rs. 25,000 on 01 January, 2015) se following erm 2) Inception of ase: anaaty, 2015 8) Lease period yar, ©) Usefl ie of set 10 years 4), Lense inaliens oR. 2,00 (to be increased an eres it asset on sigh ine basi. Required ‘tele repat the jul entries inthe books o Free he jour he books of GLL foreach ofthe years affected assuming yer et] by 5%) are payable in advance, ‘Quetun-t (Advance + Annual + Increase) from Cee Lid (hich aden Oa Re nce Ltd. on 1 July, 2015. Bee Lid. agreed to leases 2) san tase ays See RS 1.00001 Jay 203), onte klong omen ®) Leas period years ©) Useful ie of asset years 4) Lease installment of Re 1500 (0 be ner estas tao ae tama by 5) ae payable in ada./TER- use’ JFRS-16 LEASES, nd (Arrears + Sem -annual + Increase) Freeman Ld-entered into an operating lease contact with Freddy Lid, The tenn of he eae comrat ree Commencement of Tease = 01 January, 2008 Tease term = 3 years sefllife = 6 years Serna etl payable in erears = RS 00 vith 5 nereaseannuly) Required frepar joural ents for all the yeas in the books of Freddy Lid. (etor) assuming yearend is 31 December, Qvestion-45 (Arrears + Seml-annual + Increase) Morgan Lid entered into an operating lease contract with Wame Lid. The terms ofthe lease contrat are: Fair value of eset purchased on 1/7/09 = Rs. 60,000 Commencement of lease = 01 July, 2009 Lease tem = 3 years Useful life = lO years Semannual rentals payable in arrears Rs. 2,500 (with $% increase annually) Required Prepare journal enties forall the year Question-46 (Advance + Semi - any Miller Lid. entered ito an operat: ir vale of aset purchased om 1/1 Commencement of lease Lease term y Useful life 8 yours Semiannual rentals payable in advance =, 600 (with 5% red Required Prepare joumal entries forall the years in the books of Sm ecember, ‘nthe books of Warne Ltd. (lessot) assuming yearend is 30 June. rease) * with Smith Ltd, The terms ofthe tease contract are: 2005 ually) Lid. (lessor) assuming year end is 31 ‘Question-47 (Advance + Semi - annual + Increase) ‘498 Co. entered into an operating lease contrat with Bee Co. The terms cf the lease contract are: Frlrvalue of asset = Rs, 60,000 Commencement of lease 1 July, 2009 as ern ‘years Useful life 0 years & en-anial rents payable in advance Required me rear journal entries for all the years in the books of Bee Co. assuming yearend is 30 June Rs. 2,500 (with 5% increase annually) Net ited eters into a 4 year leae of machine on srry 206 The i vale of michn "econencenent ofthe ease wus Re 4.208 tn Rivera Limited nerd il det onto Rese hearing theese, etl les yen are R500, payable atthe sof ch yest inated res vlu ofthe ase! the eed of te ase 5000 and Riv Lined bas "rnc is amount. The ented wef io ase! ies 7RS-16) ceuuapren 2 i, “The imteret rte implicit inthe lease is 12%. = eae ert nen street! it 20842 ener 2010 82011 re gon Snenen of Financ Pston 31 Deemer, Or the ancl Semen forte yeareded 31 December, 2010 & 201 9 Pea Campton 31 December, gg a agreed to Jese a machine to Rivera Limited commencing on | January, 209, ‘Qusstion-49 Kabeera Finance In. 09 with annual Lease payments of R159, “The lease was e4 yea lease of machine on I January, 20 payable in areas. ‘The fair vlurof the machine at the commencement ofthe lease was Rs.45,000 and Kabeera Finance, incurred inital direst casts of RS.3,737 when arranging the lease The estimated residual value ofthe asset at the end ofthe Tease is Rs 5,000 and lessee has guaranieed amount of Rs 3,000, The estimated useful life of assets 4 yeas. “Te imees te implicit in the lease is 12%. red Beet thouna ens in Kater Fare I, ook rth ys Deeb 20842 2) tue nib tom sutemet of feancnl poston rat 31 Desens” & 200 2) Pela sto the acl Steet fre yn eded 3 esos, 992010, Bree re om Semen Compre rome fre Jou nd 3 Deeombey, 20808 2010, Question 50 ‘ABC Co. (a8 lessor) leased an item of property, plant & equipment to a company. Following i ‘ei related to lease agreement between them, ‘Commencement Date L015 (Cost of Machine = 1,000,000 Useful ite 10 years ‘Asset purchased on 212015 Lease installments to be pai in areas 12-2015, 31122016 31-12-2017 = 29,640 Initia Direct Cos (IDC) of lessor pai in cash amounted to Rs 10,000 Required: ‘Calculate rental income foreach yea. ') Prepare joural entries forthe year ended 31 December, 2015 inthe books of ABC Co (tess) (Dealer SL Inception of lease rary 00 Fair value of leased asset = f 2085 Inlet cost eee Down pyaar Be 3000, Annales sable nares RS 00 =I\\ cower “ee valu (unguaranteed) tei + 2000 ty yuired I Question-52 Reve Ro. 38.000, fl epost =Re aomes Sexe samen in area he osmoes —— ao Nears =R.2000000 | Seana eas in vance che amon Lease term ~ 6 years ended CCaleulate the interest rate implicit inthe lease. = tT oaton' Peach Lid. leases an asset to XYZ td. with Lease term inception of lease Fair value of leased asset Annual rentals payable in advance ‘Residual value (unguaranteed) i Residual value (guaranteed) Required Calculate the interest rate implicit in the lease Question-ss Fair value of asset Rs. 45,556, Initial cirect cost =Rs. 10,000 Lease team years ncerest rate implicit in the lease = 10.65% per annum ‘Annual rental payable in arrears Un-Guaraneed residual value Required Calculate the annual rentals tobe pai. UC eTTERS A649, ER. : cuarrt ay Question 86 Lease tem Eennomi if of ast Ines rat mpi in the ase {Quarry rental payments in advance = 2 years (8 quarterly periods) Fair vale of ss = Rs, 112,080 Required CCleulate the quarterly rentals to be paid. Question 57 Lease term = Syears Inception of lease = 01 January, 2005 Frir vale of leased asset = Rs, 72,000 Initial dret cost = Rs, 3,000 Interest rate implicit inthe lease r ‘Annual rentals payable in arrears = Residual value (unguaranted) Rs. 7,000, Required Calculate the annual rentalsyor # JERS-16 LEASES SOLUTIONS scons ae Dat | Arias ight of us asset Lease lability Asse acquired under lease) | HS Less liability (W-2) | Financial charges (W.2) | ‘Cash (Payment of lease liability and finance charges) | [TTR | Depreciation expense (748,000 years) - rr | ‘Accumulated deprecation | s24667 Recording of depreciation expense) E | 2008, 748,000 ~ 124,667) onass «way 40204 (w2) 103,372 company A sto the Finanela Statements (Extracts onl) or the vear ended 31 December, 2005 Lease tenpany has entered into a lease agreement with a bank in respect. of Equipment. I rum saline oF Rs 16,7435 10 epi eal nes eeever Pion on Right of use ase (74,0005) ses eapeseon Lease liabiliy(W-2) al shouts for esos Interest ate is 9% per Rs. 748.000 623303 Scions to Right of Use assets during the year “ying amount of Right of Use assets at end of Yea eee errr (748,000 124,667)TERSA6 1, cowgrnm 2 a eniiacosae yments 3 Maturity Anals-Contractual aaepasents payable ae as follows: Lessthan one year leant an ments Ry “Total Undiscounted lease payment ay (wal) Calculation of PV Of LP = Rental x{-L0°) = 166,744 x {12 L140.095°1 0.09 =748,000 (0W-2) Lease amortiation schedule: ‘ate _Insalimen —_Prinsiol —_Unierest_—_Balne T2005 Te 3INQOS 166,744 4 ois 31206 166.768 08 030 31207 186.744 N18, 08 Sits eo.74s 128.787 al Sia 166.748 130,348 ss BINZN0 166.788 «132.976 Anoner2 @ Bunnco, Filo webooksoftesee Date__| Particulars — TARO | Right of use asset = Leas liability (Asset acguied under lease) SVATIG | Lease ibility Financial charges rome Payment of lease Viability and fi ity and finance cha Depreciation expense (14.275/4) a {Accumulated deprecation SET)LE BeOS Sms. aos : 2010 ‘Non-cutent assets Right of Use Asset (14275-3569) 10.706 abies ‘Non: curent abilities ‘Obligation under lease ate «way 8.28 ‘Curent portion of Obtigation under lease «way 3.288 © Bush Co. Statement of Comprehensive Income (Extracts onl the year ended 31 March, 201 Depreciation Expense (14.275/4) Financial charges @ Bush Co, Not othe Financial Statements ended 31 March Lia ‘LL Company has entered into a lease agree son respect of machine Interstate i 159% Der annum, Installment of Rs. §, 000 ist he sears ors Forthe year Depreciation on Right of use asset 3569 Interest expense on Lease liability aia “otal cash outflows for leases 5.000 Leased Assets ‘Aditions to Right of Use assets during the year (Carying amount of Right of Use asets tend of year (14,275 ~ 3,569) a alysis ments Lease payments payable are a follows Rs Less than one year 000 ‘one io two years 5.000 {wo to thee years 500. ‘Total Undscouried lease payments 15,000 ) Less ability S500] (Asset acquired under lease) _ | ToT PLease ibility [10 / — Denk | sme) (Payment of lease abiliy) | SUTBOT | Lease ability (W-2) Ee Finance charges (W-2) a) Bank | a (Payment of tease aily and finance cares) THVIBIOT | Depreiation expense (3500/43) [ay | “Accumblated depreciation | 69 (Recording of depreciation expense) _ 1 (VA) Calculation of Present Value of LE = Down payment + Rental x (41+) = 15,000 413,728 x [L=(140.1814) on = 55,000 ww. mort edule wie Date_ Installment. _Princpal__terst_ Fp TOT on WL 15.900 15,000 3 30201 13,728 8,128 se au 13728966 4a anges 1372810583 311204 13.728 12,043 168 |