- 10 Marks
FR – L2 – Q43 – Leases
Question
Zest Pharma Plc leases an asset on 1 January 20X4.
The lease is for five years at a rental of GH₵600,000 per half year in advance, with an option of two more years at nominal rental. It is reasonably certain that the option will be exercised. The present value of future lease payments is GH₵4,400,000.
The directors of Zest Pharma Plc consider that the asset has a useful life of seven years.
The rate of interest implicit in the lease is 7.68% per half year.
Required
Prepare relevant extracts from the accounts of Zest Pharma Plc at 31 December 20X4.
Answer
(a) Extracts from the financial statements of Zest Pharma Plc at 31 December 20X4
Statement of financial position
(i) Non-current assets held under leases
Plant and machinery
| Cost | GH₵000 |
|---|---|
| At 1 January 20X4 | – |
| Additions | 4,400 |
| At 31 December 20X4 | 4,400 |
| Accumulated depreciation | GH₵000 |
|---|---|
| At 1 January 20X4 | – |
| Charge for the year | 629 |
| At 31 December 20X4 | 629 |
| Carrying amount | GH₵000 |
|---|---|
| At 31 December 20X4 | 3,771 |
| At 1 January 20X4 | – |
Lease liability
| GH₵000 | GH₵000 |
|---|---|
| Current (600 + (600 – 243)) | 957 |
| Non-current | 2,803 |
Statement of profit or loss
Profit is stated after charging
| GH₵000 | GH₵000 |
|---|---|
| Finance charges | 560 (W1) |
| Depreciation 4,400 ÷ 7 | 629 |
Workings
(1) Lease liability
| Period ended | Amount borrowed | Repaid | Capital due for period | Interest | Amount due at end |
|---|---|---|---|---|---|
| GH₵000 | GH₵000 | GH₵000 | GH₵000 | GH₵000 | |
| 31.12.20X4 | 4,400 | 600 | 3,800 | 560 | 3,760 |
- Tags: Depreciation, Finance Costs, Financial Statements, IFRS 16, Lease Liability, Leases, Right-of-Use Asset
- Level: Level 2
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