Question Tag: Lease

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FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

Question

MK Plc is considering the best way to finance the replacement for a particular high specification piece of equipment that has become too costly to maintain. The replacement equipment is estimated to have a useful life of 4 years with no residual value after that time.

Two alternative financing schemes are being evaluated:

Scheme A: Buy the equipment outright funded by a bank loan
Scheme B: Enter into a four-year finance lease

Scheme A: Buy outright, funded by a bank loan
MK Plc could purchase the equipment outright at a cost of N200 million on July 1, 2016. MK Plc can normally borrow at an annual interest rate of 13% per year.

Scheme B: Four-year finance lease
The equipment would be delivered on July 1, 2016, and MK Plc would pay a fixed amount of N58,790,000 each year in advance, starting on July 1, 2016, for four years. At the end of four years, ownership of the equipment will pass to MK Plc without further payment.

Other Information:

MK Plc has a cost of equity of 20% and WACC of 16%
MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

Answer

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Tags: Discount rate, Equipment Financing, Financing, Lease, Loan, Present Value
Level: Level 3

Topic: Financing Decisions and Capital Markets

FA – Nov 2012 – L1 – SA – Q4 – Double-Entry Accounting Principles

Identifying a liability account in the books of a lessor.

Question

Which of the following is a liability account in the books of the lessor?

A. Short workings account
B. Royalty receivable account
C. Cash account
D. Lessee account
E. Statement of Profit or Loss

Answer

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Tags: Accounting, Lease, Lessor, Liability
Level: Level 1

Topic: Double-Entry Accounting Principles
Series: NOV 2012

SCS – Nov 2021 – L3 – Q7a – Sources of Finance

Analyze and recommend the most cost-effective financing option for acquiring 5G equipment: lease or borrow to buy.

Question

The management of COM requires a detailed analysis of the two financing options (borrow to buy or lease) under consideration to determine the cheaper alternative to be used to acquire the 5G equipment. The CFO has been requested to do a presentation at the next Executive Committee (EXCO) meeting.

Required:
You are the CFO, and you are to prepare a presentation to advise EXCO of the cheaper financing option. Your presentation must include detailed computations supporting your advice.
Marks: 15 marks

Answer

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Tags: 5G Equipment, Borrow to Buy, Cost Analysis, Financing Options, Lease
Level: Level 3

Topic: Sources of Finance
Series: NOV 2021

FR – May 2017 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Compare and contrast Hire Purchase and Lease as methods of acquiring an asset.

Question

a) Compare and contrast Hire Purchase and Lease as a mode of acquiring an asset.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Acquisition, Hire Purchase, IAS 17, IFRS 16, Lease
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: MAY 2017

CR – April 2022 – L3 – Q3a – Financial instruments: Recognition and measurement

Account for finance lease and financial liability transactions according to relevant IFRS.

Question

a) Zeus Ltd manufactures equipment for lease or sale. The following transactions relate to Zeus Ltd for the year ended 31 December 2020:

i) On 31 December 2020, Zeus Ltd leased out equipment under a 10-year finance lease. The selling price of the leased item was GH¢50 million, and the net present value of the minimum lease payments was GH¢47 million. The carrying value of the leased asset was GH¢40 million, and the present value of the residual value of the product when it reverts to Zeus Ltd at the end of the lease term is GH¢2.8 million. Zeus Ltd has shown sales of GH¢50 million and cost of sales of GH¢40 million in its financial statements.
(5 marks)

ii) On 1 January 2020, Zeus Ltd raised finance by issuing a two-year deeply discounted 2% bond with a nominal value of GH¢20,000 that was issued at a discount of 5% and is redeemable at a premium of GH¢2,150. There were no issue costs. The bond has an effective interest rate of 10%.
(5 marks)

Required:
Recommend to the directors of Zeus Ltd how the above transactions should be accounted for in the financial statements for the year ended 31 December 2020 in accordance with relevant International Financial Reporting Standards.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Liabilities, IFRS 16, IFRS 9, Lease
Level: Level 3

Topic: Financial instruments: Recognition and measurement Corporate reporting
Series: APR 2022

PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

Question

i) State ONE objective of a public private partnership agreement?

ii) Explain THREE factors that the Government would consider before entering into a public private partnership agreement?

iii) Explain the following terms used as guiding principles in IPSAS 13 and 32 – Accounting for Public Private Partnership:

Service Concession Arrangement
Lease
Recognition of Revenue
Economic Life of an Asset

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Life, Financial management, Ghana, IPSAS, Lease, PPP, Public-Private Partnership, Revenue Recognition, Service Concession
Level: Level 2

Topic: Public sector financing initiatives
Series: MAY 2016

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

Question

Two alternative financing schemes are being evaluated:

Scheme A: Buy the equipment outright funded by a bank loan
Scheme B: Enter into a four-year finance lease

Other Information:

MK Plc has a cost of equity of 20% and WACC of 16%
MK Plc is liable to company tax at a marginal rate of 30%, which is settled at the end of the year in which it arises
Tax depreciation allowances on the full capital cost are available in equal instalments over the first four years of operation

You are required to:

a.

Calculate which payment method is expected to be cheaper for MK Plc and recommend which should be chosen solely on the present value of the two alternatives as at July 1, 2016. (13 Marks)

b.

Discuss the appropriateness of the discount rate used in (a). (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Discount rate, Equipment Financing, Financing, Lease, Loan, Present Value
Level: Level 3

Topic: Financing Decisions and Capital Markets

FA – Nov 2012 – L1 – SA – Q4 – Double-Entry Accounting Principles

Identifying a liability account in the books of a lessor.

Question

Which of the following is a liability account in the books of the lessor?

A. Short workings account
B. Royalty receivable account
C. Cash account
D. Lessee account
E. Statement of Profit or Loss

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accounting, Lease, Lessor, Liability
Level: Level 1

Topic: Double-Entry Accounting Principles
Series: NOV 2012

SCS – Nov 2021 – L3 – Q7a – Sources of Finance

Analyze and recommend the most cost-effective financing option for acquiring 5G equipment: lease or borrow to buy.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: 5G Equipment, Borrow to Buy, Cost Analysis, Financing Options, Lease
Level: Level 3

Topic: Sources of Finance
Series: NOV 2021

FR – May 2017 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Compare and contrast Hire Purchase and Lease as methods of acquiring an asset.

Question

a) Compare and contrast Hire Purchase and Lease as a mode of acquiring an asset.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Acquisition, Hire Purchase, IAS 17, IFRS 16, Lease
Level: Level 2

Topic: Professional and Ethical Issues in Financial Reporting
Series: MAY 2017

CR – April 2022 – L3 – Q3a – Financial instruments: Recognition and measurement

Account for finance lease and financial liability transactions according to relevant IFRS.

Question

a) Zeus Ltd manufactures equipment for lease or sale. The following transactions relate to Zeus Ltd for the year ended 31 December 2020:

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Liabilities, IFRS 16, IFRS 9, Lease
Level: Level 3

Topic: Financial instruments: Recognition and measurement Corporate reporting
Series: APR 2022

PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

Question

i) State ONE objective of a public private partnership agreement?

ii) Explain THREE factors that the Government would consider before entering into a public private partnership agreement?

iii) Explain the following terms used as guiding principles in IPSAS 13 and 32 – Accounting for Public Private Partnership:

Service Concession Arrangement
Lease
Recognition of Revenue
Economic Life of an Asset

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Life, Financial management, Ghana, IPSAS, Lease, PPP, Public-Private Partnership, Revenue Recognition, Service Concession
Level: Level 2

Topic: Public sector financing initiatives
Series: MAY 2016

Question Tag: Lease

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FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

a.

b.

FA – Nov 2012 – L1 – SA – Q4 – Double-Entry Accounting Principles

Identifying a liability account in the books of a lessor.

SCS – Nov 2021 – L3 – Q7a – Sources of Finance

Analyze and recommend the most cost-effective financing option for acquiring 5G equipment: lease or borrow to buy.

FR – May 2017 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Compare and contrast Hire Purchase and Lease as methods of acquiring an asset.

CR – April 2022 – L3 – Q3a – Financial instruments: Recognition and measurement

Account for finance lease and financial liability transactions according to relevant IFRS.

PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

FM – May 2016 – L3 – Q7 – Financing Decisions and Capital Markets

Comparing the cost of financing equipment replacement through an outright purchase funded by a loan versus a finance lease.

a.

b.

FA – Nov 2012 – L1 – SA – Q4 – Double-Entry Accounting Principles

Identifying a liability account in the books of a lessor.

SCS – Nov 2021 – L3 – Q7a – Sources of Finance

Analyze and recommend the most cost-effective financing option for acquiring 5G equipment: lease or borrow to buy.

FR – May 2017 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Compare and contrast Hire Purchase and Lease as methods of acquiring an asset.

CR – April 2022 – L3 – Q3a – Financial instruments: Recognition and measurement

Account for finance lease and financial liability transactions according to relevant IFRS.

PSAF – May 2016 – L2 – Q4c – Public sector financing initiatives

This question explores the objectives and guiding principles of Public Private Partnership (PPP) agreements in Ghana.

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