1/19/2024

CASE STUDY #2
The company “TravoMek SA” made an ‘’acquisition’’ the through a leasing contract
on April 1st, N of a building with the following characteristics:
• Estimated value of the property = 410 000,00
• Residual value = 39 353,67
• Monthly payments – end of the period = 10 000,00
• Period of use = 4 years
• Initial direct costs = 20 000,00
• Future costs of dismantling the asset = 225 000,00
Required :
1. Calculate the interest rate implicit in the lease using 0,75% and 1,75% as limits.
2. Calculate the cost of the asset from the lessee’s perspective
3. Record the acquisition entry for the asset from the lessee perspective
4. Prepare the depreciation tables of the asset for N using the a) Straight-line
method, b) Double declining balance method and c) Softy method
5. Calculate the payments on the receivable lease and record the journal entries
for the lessor – assuming that it’s a finance lease

19/01/2024 242

CASE STUDY #2– Solution

1. The interest rate implicit to the lease
With a rate of 1,75% :
𝟒𝟖
(𝟒𝟏𝟎 𝟎𝟎𝟎, 𝟎𝟎 − 𝟑𝟗 𝟑𝟓𝟑, 𝟔𝟕 × 𝟏, 𝟎𝟏𝟕𝟓 )
𝑷𝒂𝒚𝒎𝒆𝒏𝒕𝒔 = = 𝟏𝟐 𝟏𝟔𝟔, 𝟎𝟏
𝟏 − 𝟏, 𝟎𝟏𝟕𝟓 𝟏𝟖𝟎
( )
𝟎, 𝟎𝟏𝟕𝟓
With a rate of 0,75% :
𝟒𝟖
(𝟒𝟏𝟎 𝟎𝟎𝟎, 𝟎𝟎 − 𝟑𝟗 𝟑𝟓𝟑, 𝟔𝟕 × 𝟏, 𝟎𝟎𝟕𝟓 )
𝑷𝒂𝒚𝒎𝒆𝒏𝒕𝒔 = = 𝟗 𝟓𝟏𝟖, 𝟕𝟎
𝟏 − 𝟏, 𝟎𝟎𝟕𝟓 𝟒𝟖
( )
𝟎, 𝟎𝟎𝟕𝟓

9 518,70 10 000,00 12 166,01

10 000,00 − 9 518,70 𝑡 − 0,0075
=
12 166,01 − 9 518,70 0,0175 − 0,0075
0,75% t 1,75%

0,0175 − 0,0075 × (10 000,00 − 9 518,70)

𝑡 = 0,0075 + = 𝟎, 𝟗 %
(12 166,01 − 9 518,70)
19/01/2024
≈ 𝟏𝟎, 𝟖𝟎% 243

CASE STUDY #2– Solution

2. Calculate the cost of the asset
• With an interest rate implicit in the lease of 10,8%, the lease liability is :
𝟏 − 𝟏, 𝟏𝟎𝟖 𝟒
𝑳𝒆𝒂𝒔𝒆 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒚 = 𝟏𝟎 𝟎𝟎𝟎 × 𝟏𝟐 × = 𝟑𝟕𝟑 𝟖𝟖𝟖, 𝟖𝟒
𝟎, 𝟏𝟎𝟖
• The discounted residual value is :
𝟒
𝑫𝒊𝒔𝒄𝒐𝒖𝒏𝒕𝒆𝒅 𝑹𝑽 = 𝟑𝟗 𝟑𝟓𝟑, 𝟔𝟕 × 𝟏, 𝟏𝟎𝟖 = 𝟐𝟔 𝟏𝟏𝟏, 𝟏𝟔
• Initial direct costs = 𝟐𝟎 𝟎𝟎𝟎, 𝟎𝟎
• Future costs of dismantling the asset
𝑭𝑪𝑫 = 𝟐𝟐𝟓 𝟎𝟎𝟎, 𝟎𝟎 × 𝟏, 𝟏𝟎𝟖 𝟖 = 𝟏𝟒𝟗 𝟐𝟖𝟕, 𝟓𝟏
The cost of the asset = 569 287,51
3. Record the acquisition entry for the asset

Jan. 01 Building -Right-of-use (2332) 569 287,51

N A/P for lease liability (1488) [1] 410 000,00
Cash (5141) 20 000,00
Provisions for dismantling (1555) 149 287,51
To record the right of use asset (Building)

[1] 410 000,00 = 373 888,84 + 26 111,16

 1/19/2024

CASE STUDY #2– Solution

4. Depreciation expense for N

• With an interest rate implicit in the lease of 10,8%, the lease liability is :
𝟏 − 𝟏, 𝟏𝟎𝟖 𝟒
𝑳𝒆𝒂𝒔𝒆 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒚 = 𝟏𝟎 𝟎𝟎𝟎 × 𝟏𝟐 × = 𝟑𝟕𝟑 𝟖𝟖𝟖, 𝟖𝟒
𝟎, 𝟏𝟎𝟖
• Initial direct costs = 𝟐𝟎 𝟎𝟎𝟎, 𝟎𝟎
• Future costs of dismantling the asset
𝑭𝑪𝑫 = 𝟐𝟐𝟓 𝟎𝟎𝟎, 𝟎𝟎 × 𝟏, 𝟏𝟎𝟖 𝟖 = 𝟏𝟒𝟗 𝟐𝟖𝟕, 𝟓𝟏
Depreciable amount = 543 176,35

Book value Depreciable Depreciable

Depreciation Depreciation Accumulated Book value end of
Year beginning of the amount beginning amount end of the
rate expense depreciation the year
year of the year year
N
569 287,51 543 176,35 25% 101 845,57 101 845,57 441 330,78 467 441,94
(9 m)

N+1 569 287,51 543 176,35 25% 135 794,09 237 639,65 305 536,70 331 647,86

N+2 569 287,51 543 176,35 25% 135 794,09 373 433,74 169 742,61 195 853,77

N+3 569 287,51 543 176,35 25% 135 794,09 509 227,83 33 948,52 60 059,68

N+4
569 287,51 543 176,35 25% 33 948,52 543 176,35 0,00 26 111,16
(3 m)

Dec. 31 Depreciation Expense (6193) 101 845,57

N Accumulated Depreciation (2832) 101 845,57
To record Depreciation Expense

Book value Depreciable Depreciable

Depreciation Depreciation Accumulated Book value end of
Year beginning of the amount beginning amount end of the
rate expense depreciation the year
year of the year year
N
569 287,51 543 176,35 50% 203 691,13 203 691,13 339 485,22 365 596,38
(9 m)

N+1 365 596,38 339 485,22 50% 169 742,61 373 433,74 169 742,61 195 853,77

N+2 195 853,77 169 742,61 50% 84 871,30 458 305,05 84 871,30 110 982,46

N+3 110 982,46 84 871,30 50% 42 435,65 500 740,70 42 435,65 68 546,81

N+4
68 546,81 42 435,65 100% 42 435,65 543 176,35 0,00 26 111,16
(3 m)

Dec. 31 Depreciation Expense (6193) 203 691,13

N Accumulated Depreciation (2832) 203 691,13
To record Depreciation Expense
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Monthly depreciation
Book value Depreciable Depreciation Depreciation Accumulated Depreciable Book value
Year Month
BoY amount BoY rate expense depreciation amount EoY EoY
N Avril 569 287,51 543 176,35 4,0816% 22 170,46 22 170,46 521 005,89 547 117,05
N Mai 569 287,51 543 176,35 3,9966% 21 708,58 43 879,04 499 297,31 525 408,47
N Juin 569 287,51 543 176,35 3,9116% 21 246,69 65 125,74 478 050,61 504 161,77
N Juillet 569 287,51 543 176,35 3,8265% 20 784,81 85 910,55 457 265,80 483 376,96
N Août 569 287,51 543 176,35 3,7415% 20 322,92 106 233,47 436 942,88 463 054,04
N Septembre 569 287,51 543 176,35 3,6565% 19 861,04 126 094,51 417 081,84 443 193,00
N Octobre 569 287,51 543 176,35 3,5714% 19 399,16 145 493,67 397 682,68 423 793,84
N Novembre 569 287,51 543 176,35 3,4864% 18 937,27 164 430,94 378 745,41 404 856,57
N Décembre 569 287,51 543 176,35 3,4014% 18 475,39 182 906,32 360 270,03 386 381,19
… … … … … … … … …
N+2 Décembre 569 287,51 543 176,35 1,3605% 7 390,15 487 750,19 55 426,16 81 537,32
… … … … … … … … …
N+4 Janvier 569 287,51 543 176,35 0,2551% 1 385,65 541 790,70 1 385,65 27 496,81
N+4 Février 569 287,51 543 176,35 0,1701% 923,77 542 714,47 461,88 26 573,04
N+4 Mars 569 287,51 543 176,35 0,0850% 461,88 543 176,35 0,00 26 111,16

Dec. 31 Depreciation Expense (6193) 182 906,32

N Accumulated Depreciation (2832) 182 906,32
To record Depreciation Expense

CASE STUDY #2– Solution

4. The lease liability amortization table
Share of Share of The due Dismantling
Year A/P Annuities
interest capital balance cost (FV)
0 149 287,51
1 373 888,84 40 379,99 79 620,01 120 000,00 294 268,83 16 123,05
2 294 268,83 31 781,03 88 218,97 120 000,00 206 049,87 17 864,34
3 206 049,87 22 253,39 97 746,61 120 000,00 108 303,25 19 793,69
4 108 303,25 11 696,75 108 303,25 120 000,00 0,00 21 931,41
106 111,17 373 888,83 480 000,00 480 000,00 225 000,00

Dec. 31 A/P for lease liability (1488) 79 620,01

N Interest expenses (6311) 40 379,99
Cash (5141) 120 000,00
To record annual payments
Dec. 31 Interest expenses (6311) 16 123,05 (1)
Provisions for dismantling
N 16 123,05
(1555)
To record annual payments

(1) 16 123,05 = 149 287,51 x 10,8%

CASE STUDY #2– Solution

4. The lease liability amortization table
Share of Share of The due Dismantling
Year A/P Annuities
interest capital balance cost (FV)
0 149 287,51
1 373 888,84 40 379,99 79 620,01 120 000,00 294 268,83 16 123,05
2 294 268,83 31 781,03 88 218,97 120 000,00 206 049,87 17 864,34
3 206 049,87 22 253,39 97 746,61 120 000,00 108 303,25 19 793,69
4 108 303,25 11 696,75 108 303,25 120 000,00 0,00 21 931,41
106 111,17 373 888,83 480 000,00 480 000,00 225 000,00

Dec. 31 A/P for lease liability (1488) 88 218,97

N+1 Interest expenses (6311) 31 781,03
Cash (5141) 120 000,00
To record annual payments
Dec. 31 Interest expenses (6311) 17 864,34 (1)
Provisions for dismantling
N+1 17 864,34
(1555)
To record annual payments

(1) 17 864,34 = (149 287,51 + 16 123,05) x 10,8%

 1/19/2024

CASE STUDY #2– Solution

4. The lease liability amortization table
Share of Share of The due Dismantling
Year A/P Annuities
interest capital balance cost (FV)
0 149 287,51
1 373 888,84 40 379,99 79 620,01 120 000,00 294 268,83 16 123,05
2 294 268,83 31 781,03 88 218,97 120 000,00 206 049,87 17 864,34
3 206 049,87 22 253,39 97 746,61 120 000,00 108 303,25 19 793,69
4 108 303,25 11 696,75 108 303,25 120 000,00 0,00 21 931,41
106 111,17 373 888,83 480 000,00 480 000,00 225 000,00

Dec. 31 A/P for lease liability (1488) 97 746,61

N+2 Interest expenses (6311) 22 253,39
Cash (5141) 120 000,00
To record annual payments
Dec. 31 Interest expenses (6311) 19 793,69 (1)
Provisions for dismantling
N+1 19 793,69
(1555)
To record annual payments

(1) 19 793,69 = (149 287,51 + 16 123,05 + 17 864,34 ) x 10,8%

CASE STUDY #2– Solution

4. The lease liability amortization table
Share of Share of The due Dismantling
Year A/P Annuities
interest capital balance cost (FV)
0 149 287,51
1 373 888,84 40 379,99 79 620,01 120 000,00 294 268,83 16 123,05
2 294 268,83 31 781,03 88 218,97 120 000,00 206 049,87 17 864,34
3 206 049,87 22 253,39 97 746,61 120 000,00 108 303,25 19 793,69
4 108 303,25 11 696,75 108 303,25 120 000,00 0,00 21 931,41
106 111,17 373 888,83 480 000,00 480 000,00 225 000,00

Dec. 31 A/P for lease liability (1488) 108 303,25

N+3 Interest expenses (6311) 11 696,75
Cash (5141) 120 000,00
To record annual payments
Dec. 31 Interest expenses (6311) 21 931,41 (1)
Provisions for dismantling
N+3 21 931,41
(1555)
To record annual payments

(1) 21 931,41 = (149 287,51 + 16 123,05 + 17 864,34 + 19 793,69) x 10,8%

CASE STUDY #2– Solution

5. Lease receivable for the lessor (Finance-lease)
With an interest rate implicit in the lease of 10,8%, the lease receivable on the
lessor’s finance lease contract is :
𝟏 − 𝟏, 𝟏𝟎𝟖 𝟒
𝑳𝒆𝒂𝒔𝒆 𝒓𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 = 𝟏𝟎 𝟎𝟎𝟎 × 𝟏𝟐 × = 𝟑𝟕𝟑 𝟖𝟖𝟖, 𝟖𝟒
𝟎, 𝟏𝟎𝟖

Share of Share of The due

Year A/P Annuities
interest capital balance
0
1 373 888,84 40 379,99 79 620,01 120 000,00 294 268,83
2 294 268,83 31 781,03 88 218,97 120 000,00 206 049,87
3 206 049,87 22 253,39 97 746,61 120 000,00 108 303,25
4 108 303,25 11 696,75 108 303,25 120 000,00 0,00
106 111,17 373 888,83 480 000,00 480 000,00

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CASE STUDY #2– Solution

Jan. 01 Lease receivable (2488) 373 888,84
N Rent revenues (7127) 373 888,84
To record annual payments
Dec. 31 Cash (5141) 120 000,00
N Lease receivable (2488) 79 620,01
Interest revenue (7311) 40 379,99
To record annual payments

Dec. 31 Cash (5141) 120 000,00

N+1 Lease receivable (2488) 88 218,97
Interest revenue (7311) 31 781,03
To record annual payments

Dec. 31 Cash (5141) 120 000,00

N+2 Lease receivable (2488) 97 746,61
Interest revenue (7311) 22 253,39
To record annual payments

Dec. 31 Cash (5141) 120 000,00

N+3 Lease receivable (2488) 108 303,25
Interest revenue (7311) 11 696,75
To record annual payments

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