Page 134 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 6

1.2 Accounting for finance leases

4 steps

(1) Capitalise the asset

Capitalise at the lower of:
Dr Asset
 PV of minimum lease payments
Cr Finance lease liability
 FV of the asset

(2) Depreciate the asset

Depreciate over the lower of:
Dr Depreciation expense
 Lease term
Cr Asset
 Useful economic life of the asset

(3) Record interest expense

Interest will be allocated using:
Dr Finance cost
 Actuarial method (%)
Cr Finance lease liability

(4) Record lease payment and show current and non-current liability split

Dr Finance lease liability

Cr Cash

126