FINANCE LEASES
CALCULATIONS:
- 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
- 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.
- 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
- 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