- 15 Marks
FR – L2 – Q41 – Financial Reporting Standards and Their Applications
Question
On 1 January 20X4, Cypress Limited entered into the following lease agreements.
(a) Threshing machine
A lease of a threshing machine for 3 years from Alpha Ltd.
A deposit of GH¢2,000,000 was payable on 1 January 20X4 followed by 3 instalments of GH¢6,500,000 payable in arrears, commencing on 31 December 20X4. The present value of future lease payments is GH¢16,752,000 and the interest rate implicit in the lease is 8%.
(b) Baling machine
A lease of a baling machine for 5 years from Beta Ltd.
Cypress Limited has agreed to make 5 annual instalments of GH¢35,000 payable in advance, commencing on 1 January 20X4. The present value of future lease payments is GH¢150,000.
The interest rate implicit in the lease is 8.36%.
Required
Show the relevant extracts from the accounts of Cypress Limited for year ended 31 December 20X4.
Answer
Extracts from the financial statements of Cypress Limited for year-ended December 20X4
Statement of profit or loss
| Profit is stated after charging | GH¢000 |
|---|---|
| Finance charges (1,340 + 9,614) (W1 and 2) | 10,954 |
| Depreciation | 41,667 |
Statement of financial position
| Non-current assets | GH¢000 |
|---|---|
| Right-of-use assets | 12,621 |
| Current liabilities | GH¢000 |
|---|---|
| Lease liability (35,000 + (11,592,000 – 6,019,000)) | 5,608 |
| Non-current liabilities | GH¢000 |
|---|---|
| Lease liability (89,614 + 6,019,000) | 6,109 |
Note
| Plant and | GH¢000 |
|---|---|
| Cost | |
| At 1 January 20X4 | 5,609 |
| Additions (18,752,000 + 150,000) | 18,902 |
| At 31 December 20X4 | 18,902 |
| Accumulated depreciation | |
| At 1 January 20X4 | – |
| Charge for year (18,752 / 3 + 150 / 5) | 6,281 |
| At 31 December 20X4 | 6,281 |
| Carrying amount | |
| At 31 December 20X4 | 12,621 |
| At 1 January 20X4 | – |
Workings
(1) Threshing machine
Lease liability
| Period ended | Capital O/S at start | Interest (8%) | Lease payment | Capital O/S at end |
|---|---|---|---|---|
| GH¢000 | GH¢000 | GH¢000 | GH¢000 | |
| 31.12.20X4 | 16,752 | 1,340 | (6,500) | 11,592 |
| 31.12.20X5 | 11,592 | 927 | (6,500) | 6,019 |
| 31.12.20X6 | 6,019 | 481 | (6,500) | – |
(2) Baling machine
| Period | Amount at start | Lease payment | Net amount O/S at | Interest | Amount at end |
|---|---|---|---|---|---|
| GH¢000 | GH¢000 | GH¢000 | GH¢000 | GH¢000 | |
| 31.12.20X4 | 150,000 | (35,000) | 115,000 | 9,614 | 124,614 |
| 31.12.20X5 | 124,614 | (35,000) | 89,614 | 7,492 | 97,106 |
- Tags: Depreciation, Finance Costs, Financial Statements, IFRS 16, Lease Liabilities, Leases, Right-of-Use Assets
- Level: Level 2
- Uploader: Samuel Duah