- 10 Marks
FR – L2 – Q40 – Financial Reporting Standards and Their Applications
Question
On 1 January 20X4, Finley Ltd entered into an agreement to lease a boat. The initial measurement of the lease liability was GH¢36,000 and the term of the lease was four years. Annual lease payments of GH¢10,000 are payable in advance. The interest rate implicit in the lease is 7.5%.
Required
Show how this lease would be presented in the statement of profit or loss of Finley Ltd for the year ended 31 December 20X4 and the statement of financial position as at that date. Detailed disclosure notes are not required.
Answer
Financial statements for the year-ended 31 December 20X4 (extracts)
Statement of financial position
| Non-current assets | GH¢ |
|---|---|
| Property, plant and equipment (36,000 – 9,000) | 27,000 |
| Current liabilities | GH¢ |
|---|---|
| Lease liability (W1) | 10,000 |
| Non-current liabilities | GH¢ |
|---|---|
| Lease liability (W1) | 17,950 |
Statement of profit or loss
| GH¢ |
|---|
| Depreciation on leased assets ((36,000 ÷ 4)) |
| Lease charges (W1) |
Workings
(W1) Lease liability (boat)
| Year-ended | Opening balance (GH¢) | Lease payment (GH¢) | Capital outstanding (GH¢) | Interest at 7.5% (GH¢) | Closing balance (GH¢) |
|---|---|---|---|---|---|
| 31 December 20X4 | 36,000 | (10,000) | 26,000 | 1,950 | 27,950 |
| 31 December 20X5 | 27,950 | (10,000) | 17,950 | 1,346 | 19,296 |
Current (balancing figure): GH¢10,000
Non-current: GH¢17,950
Total: GH¢27,950
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