IAS 17 Question 3

QUESTION 3: IAS 17 LEASES

In the year ended 31 December 2015, Fabian leased two assets.

(1) A car was leased on 1 July 2015 via a three year lease agreement. Fabian paid a deposit of
$7,500 followed by 36 monthly payments of $700 each on the 1st of each month. At the end
of the three years Fabian will return the car. The car has a useful life of eight years.

(2) A machine was leased on 1 January 2015 via a four year lease. The machine has a fair
value of $130,000 and Fabian is responsible for its upkeep. Lease payments of $40,000 are
payable in arrears annually. The interest rate implicit in the lease is 10% and the present
value of the minimum lease payments is $126,760.

Required:
Show how the two lease agreements would be presented in the statement of profit or loss for 2015
and the statement of financial position at 31 December 2015. Notes to the financial statements are
not required.

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IAS 17 Question 3

ANSWER – QUESTION 3: IAS 17 LEASES

Fabian’s
Statement of Comprehensive Income
for the year ended 31 December 2015 $
Depreciation $ 126,760 / 4 31,690
Interest expense W1 12,676
Lease rental W2 5,450

Finley’s
Statement of financial position
as at 31 December 2015 $
Non-current assets
PPE under finance lease 126,760
Less: Accumulated depreciation (31,690)
95,070
Current assets
Prepaid lease rental W2 6,250

Non-current liabilities
Finance lease obligation W1 69,380

Current liabilities
Finance lease obligation W1 30,056

Working 1 – Finance Lease Schedule (Payments in arrears)

Balance at Interest Rental Principal Balance at
Time
beginning $ @10% $ element $ end $
31.12.15 126,760 12,676 40,000 27,324 99,436
31.12.16 99,436 9,944 40,000 30,056 69,380

Working 2 $
Total MLP over lease term $ 7,500 + [$ 700 x 36] 32,700

Cash Paid in 2015 $ 7,500 + [$ 700 x 6] 11,700

Expense for 2015 $ 32,700 x 6/36 months (5,450)
Prepayment 6,250

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