Griffiths plc manufactures premium woollen blankets and throws. It has a factory in Cardiff and prepares financial
Question:
Griffiths plc manufactures premium woollen blankets and throws. It has a factory in Cardiff and prepares financial statements to 31 December each year. On 1 January 2020 it leased a knitting machine. The schedule of payments was as follows:
Payment Date | £ |
1 January 2020 | 10,000 |
1 January 2021 | 8,000 |
1 January 2022 | 8,000 |
1 January 2023 | 12,000 |
On making the final payment, ownership of the lease will pass to Griffiths. The useful life of the machine is 5 years and it is expected to have a residual value of £2,000.
The rate implicit in the lease is 5%. The discount factors at 5% are:
Year | |
1 | 0.952 |
2 | 0.907 |
3 | 0.864 |
4 | 0.823 |
Required:
- Prepare extracts for Griffiths for the year ended 31 December 2021 in the following statements:
Statement of Financial Position
Income Statement
Cashflow Statement
(17 marks)
- Explain how the rules for leases have changed under IFRS to ensure financial statements present a fairer representation of leases.
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair