FINANCE LEASES

CALCULATIONS:

  1. Initial recognition on 1 January 20.0

Dr Cr

Asset (e.g. machine, furniture and equipment etc) (SFP) XXXX

Finance lease liability (SFP) XXXX

Notes for Shaun: Check if Present value is lower or fair value is lower. Show and do calculations

  1. Depreciation must be written of annually on the asset:

Dr Cr

Depreciation (P of L) xxxx

Accumulated depreciation (SFP) xxxx

Note to Shaun: Work out depreciation by taking total asset value and dividing by either the useful life or lease term. Show calculations.

If ownership is certain then use useful life, if ownership is uncertain then use lower year value of the useful life or leaseterm.

  1. Amortization table

Year / Installment / Capital / Interest / Balance
R / R / R / R
Opening / R90 000
1 / 25 000 / 14152 / 10848 / 75848
2 / 25 000 / 15859 / 9142 / 59990
3 / 25 000 / 17769 / 7231 / 42221
4 / 25 000 / 19911 / 5089 / 22311
5 / 25 000 / 2689 / 22311 / R0
  1. Accounting treatment

Accounting treatment once the first installment is paid on 31 December 20.0:

Dr Cr

Finance lease liability (SFP) XXXX

Finance cost (P of L) XXXX

Bank (SFP) XXXX

Accounting treatment once the second installment is paid on 31 December 20.1:

Dr Cr

Finance lease liability (SFP) XXXX

Finance cost (P of L) XXXX

Bank (SFP) XXXX

Show other years if they ask.

DISCLOSURE:

STATEMENT OF FINANCIAL POSITION AS ON 31 DECEMBER 20.0

ASSETS

Non-current assets

Property plant and equipment XXXX

EQUITY AND LIABILITIES

Total liabilities 75 848

NON-CURRENT LIABILITY

Long term portion of finance lease liability59 990

CURRENT LIABILITY

Current portion payable within 1year15 858

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DESEMBER 20.0

Salesxxxxx

Cost of sales (xxxxx)

Gross profit xxxxx

Expenses

Other expensesxxxxx

Finance cost 10000

Notes to the financial statements:

2. Profit before tax

Profit before tax is stated after taking into account the following items:

Depreciation XXXX

Finance cost XXXX

3. Property, plant and equipment

Carrying amount beginning of the year -

Cost -

Accumulated depreciation -

Movements:

Additions 90 000

Depreciation 18 000

Carrying amount end of the year 72 000

Cost 90 000

Accumulated depreciation (18000)

4. Long-term borrowing

Total liability under finance lease agreement 75 848

Current portion payable within 1 year (15 858)

Long-term portion of finance lease liability 59 990

The above liability is secured by machinery under a finance lease agreement. The loan bears interest at a rate of 12.0535% per annum and is repayable in 5 equal installments of R 25 000 commencing 31 December 20.0. The period of the lease is 5 years.

Reconciliation between the total of minimum lease payments at 31 December 20.0 and their

Present value:

Up to 1 year1 to 5 years Total

Amount at statement of financial position date 25 000 75 000 100 000

Finance cost (9 142) (15 009) (24 151)

Present value 15 858 59 990 75 848