lOMoAR cPSD| 49511909
FAC3762/105
5
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, lOMoAR cPSD| 49511909
EXAMPLE 1
Sharp Ltd entered into a finance lease on 1 January 20.17 whereby Sharp
Ltd leases a grader to Point Ltd. The lease is a finance lease in terms of IFRS
16, Leases.
The terms of the lease are as follows:
Cost of the grader: R500 000
Estimated useful life of grader: 5 years with Rnil residual value
Period of lease agreement: 4 years
Annual instalment: R176 907 (first instalment on
31/12/20.17)
Sharp Ltd incurred legal fees of R10 000 to secure the lease agreement.
Ignore depreciation, income tax and VAT.
REQUIRED
(a) Prepare the amortisation table of the abovementioned
finance lease agreement regarding the initial recognition
on 1 January 20.17 of the lease in the accounting records
of Sharp Ltd.
(b) Prepare the journal entries for the recording of the lease
over the period of the lease agreement in the accounting
records of Sharp Ltd.
Your answers must comply with the International Financial
Reporting Standards (IFRS).
Round all amounts to the nearest Rand.
SOLUTION 1
6
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, lOMoAR cPSD| 49511909
FAC3762/105
LESSOR: FINANCE LEASE
The lessor must account for the lease as a receivable at an
amount equal to the net investment in the lease.
Net investment in the lease is the gross investment in the lease
discounted at the interest rate implicit in the lease.
It is important that you study the definitions of these terms,
which are provided at the beginning of the learning unit.
Step 1: Calculate the interest rate implicit in the lease (IRIL)
Present value of: Fair value of
Lease payments + leased asset
IRIL
Unguaranteed residual = +
=
value Initial direct costs
of lessor
Set HP and Sharp EL-738 Set HP and Sharp EL-738 calculators on
1P/YR calculators on 1P/YR as there is one instalment per year.
N = 4 (1 payment per year x 4 years)
PV = (500 000 + 10 000) (fair value + initial direct costs of lessor)
PMT = 176 907
FV = 0 + 0 (guaranteed and unguaranteed residual values to the lessor)
Comp I = 14,52090% per annum
INITIAL DIRECT COSTS
Only the initial direct costs of the lessor are considered when
calculating the interest rate implicit in the lease.
7
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, lOMoAR cPSD| 49511909
Step 2: Calculate unearned finance Guaranteed and unguaranteed residual values income
R
Step 3: Prepare the amortisation table at R510
000
(a) Amortisation table
Interest at Closing
Payment date 14,5209% Instalment Capital balance
R R R R
01/01/20.17 510
000
31/12/20.17 74 057 176 907 102 850 407
150
31/12/20.18 59 122 176 907 117 785 289
365
31/12/20.19 42 018 176 907 134 889 154
476
31/12/20.20 22 431 176 907 154 476 —
197 628 707 628 510 000
(b) Journal entries
Dr Cr
R
R
8
Downloaded by Vincent master ()
FAC3762/105
5
Downloaded by Vincent master
()
, lOMoAR cPSD| 49511909
EXAMPLE 1
Sharp Ltd entered into a finance lease on 1 January 20.17 whereby Sharp
Ltd leases a grader to Point Ltd. The lease is a finance lease in terms of IFRS
16, Leases.
The terms of the lease are as follows:
Cost of the grader: R500 000
Estimated useful life of grader: 5 years with Rnil residual value
Period of lease agreement: 4 years
Annual instalment: R176 907 (first instalment on
31/12/20.17)
Sharp Ltd incurred legal fees of R10 000 to secure the lease agreement.
Ignore depreciation, income tax and VAT.
REQUIRED
(a) Prepare the amortisation table of the abovementioned
finance lease agreement regarding the initial recognition
on 1 January 20.17 of the lease in the accounting records
of Sharp Ltd.
(b) Prepare the journal entries for the recording of the lease
over the period of the lease agreement in the accounting
records of Sharp Ltd.
Your answers must comply with the International Financial
Reporting Standards (IFRS).
Round all amounts to the nearest Rand.
SOLUTION 1
6
Downloaded by Vincent master ()
, lOMoAR cPSD| 49511909
FAC3762/105
LESSOR: FINANCE LEASE
The lessor must account for the lease as a receivable at an
amount equal to the net investment in the lease.
Net investment in the lease is the gross investment in the lease
discounted at the interest rate implicit in the lease.
It is important that you study the definitions of these terms,
which are provided at the beginning of the learning unit.
Step 1: Calculate the interest rate implicit in the lease (IRIL)
Present value of: Fair value of
Lease payments + leased asset
IRIL
Unguaranteed residual = +
=
value Initial direct costs
of lessor
Set HP and Sharp EL-738 Set HP and Sharp EL-738 calculators on
1P/YR calculators on 1P/YR as there is one instalment per year.
N = 4 (1 payment per year x 4 years)
PV = (500 000 + 10 000) (fair value + initial direct costs of lessor)
PMT = 176 907
FV = 0 + 0 (guaranteed and unguaranteed residual values to the lessor)
Comp I = 14,52090% per annum
INITIAL DIRECT COSTS
Only the initial direct costs of the lessor are considered when
calculating the interest rate implicit in the lease.
7
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()
, lOMoAR cPSD| 49511909
Step 2: Calculate unearned finance Guaranteed and unguaranteed residual values income
R
Step 3: Prepare the amortisation table at R510
000
(a) Amortisation table
Interest at Closing
Payment date 14,5209% Instalment Capital balance
R R R R
01/01/20.17 510
000
31/12/20.17 74 057 176 907 102 850 407
150
31/12/20.18 59 122 176 907 117 785 289
365
31/12/20.19 42 018 176 907 134 889 154
476
31/12/20.20 22 431 176 907 154 476 —
197 628 707 628 510 000
(b) Journal entries
Dr Cr
R
R
8
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