Page 540 - F2 Integrated Workbook STUDENT 2019

F2: Advanced Financial Reporting

6.2 A

Initial value of lease liability = PV of remaining lease payments discounted at
the rate implicit in the lease.

Lease payments occur in advance. The lease liability will include one payment
of $20,000 (with a discount factor of 1) and 4 repayments of 20,000 at 8% =
$20,000 × 3.312 = $86,240.

Subsequent treatment 31 December 20X4

The lease liability will be reduced by the lease repayments paid in advance and
will add in interest cost.

Balance b/f Payment Subtotal Interest Balance c/f
(8%)
20X3 86,240 (20,000) 66,240 5,299 71,539

20X4 71,539 (20,000) 51,539 4,123 55,662
20X5 55,662 (20,000) 35,662

The non-current liability is the figure to the right of the payment in the following
year (20X5), therefore $35,662. The current liability is the total liability as at the
year-end 20X4 of $55,662 less the non-current liability of $35,662, which is
$20,000.

The finance cost is the figure in the interest column for 20X4 ($4,123).

6.3 B

Initial value of the right-of-use asset is cost = PV of liability + previously incurred
payments + initial direct costs.

The right-of-use asset is recorded at $100,000 ($86,240 + $13,760).

The right-of-use asset would be depreciated over the shorter of the lease term
or the useful lifetime as ownership does not transfer to Bunny. This would be
the lease term of 5 years.

Carrying amount as at 31 December 20X5

Initial cost 100,000
Depreciation for three years 100,000/5 × 3 (60,000)

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40,000

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