Question

on jan 1 2019 woods company sugns a 10 year lease of equipment fixed annual lease payment of 20000 on dec 31. wood capitalizes the equipment at 147202. the economic life is 20 years and no residual value. interest of 6%. classified as an operating lease what is the amount reported of right of use at dec 31 2019

Answer 1

In IND AS 116 Leases

As per Ind as 116 lessee and operating lease in the books of accounts of lessee is accounted as below.

right use asset a/c Dr

to Lease Liability a/c

Right use of asset is the Present value of all lease payment at the begining of the lease. since the lease amount 20000 is payable at the end of the each year is actually discounted to present value.

	A	B	C=A*B
Year	Lease payment	Present value factor @ 6%	Present Value
1	20000	0.943	18868
2	20000	0.889	17780
3	20000	0.839	16780
4	20000	0.792	15840
5	20000	0.747	14940
6	20000	0.705	14100
7	20000	0.665	13300
8	20000	0.627	12540
9	20000	0.592	11840
10	20000	0.558	11160
			147148

Right to use asset is to be deprecdiated over the usefull life of the asset or lease period whiche ever is lower and hense for depreciation purpose lease period of 10 years considerd as usefull life of the asset.

Since the amount reported at right use at Dec 2019

Amount of Right to use - Depreciation for Dec

147148-14715 = 132433

the figure 14715 arrived by = 147148/10*1 =14715 (Depreciation for 1 Year )