On 1 April 2018 Sun plc leased a delivery van from Moon plc, a company that produces and leases delivery van. The van had a fair value of £3,850,000. The lease contract is non-cancellable for four years at an annual rental of £1,252,000 in arrears. The cost of maintenance and insurance will be covered by Sun plc. The expected useful life of the machine is four years and there is no expected residual value on the last day of the useful life. The rate implicit in the lease is 12% per annum. The discount factors at 12% for the following four-year periods are 0.8929, 0.7972, 0.7118, and 0.6355 respectively.

Required:

Show how the information about the lease transaction will affect the income statement of Moon plc for the years ended 31 March 2019 and 2020 and the statements of financial position as at 31 March 2019 and 2020 in accordance with IFRS 16 Leases.

Answer rating: 100% (QA)

Working note Present Value Year Cashflow PV factor Present Value 1 1252000 08929 1117911 2 1252000 07972 998094 3 1252000 07118 891174 4 1252000 06355 795646 Total 3802825 The lease is considering as a finance lease because the lease contract contains substantially the whole life of the delivery van and it recovers the almost same as the fair value of the delivery van Statement of lease liability Year Opening Balance Interest 12 Payment Closing Balance 31032019 3802825 456339 1252000 3007164 31032020 3007164 360860 1252000 2116024 31032021 2116024 253923 1252000 1117947 31032022 1117947 134054 1252000 0 ... View the full answer