On 1 December 2014, Gebouw plc entered into a finance lease requiring the company to make payments
Question:
On 1 December 2014, Gebouw plc entered into a finance lease requiring the company to make payments of £785,000 each on 1 December 2014, 2015, 2016, 2017 and 2018.
The fair value of the leased asset on 1 December 2014 was £2,997,000 and it was expected to have a five-year economic life as from 1 December 2014 with no residual value. The rate of interest implicit in the lease is 15.65% a year.
In the financial statements for the year ended 30 November 2015 the rental paid on 1 December 2014 has been recorded as a payment and reported as an operating expense for the year. No other entries have been made.
Required:
Prepare detailed calculations showing how this lease should have been reported in the financial statements for the year to 30 November 2015 in order to conform with the requirements of IAS17 Leases. State the difference that the appropriate treatment would make to the following totals reported in the draft financial statements:
(i) Profit before tax.
(ii) Total assets.
(iii) Current liabilities.
(iv) Non-current liabilities.
(CIPFA)
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
International Financial Reporting A Practical Guide
ISBN: 978-1292200743
6th edition
Authors: Alan Melville