In: Accounting
Solution:
Calculation of PV of Lease Payments | |
Lease Payment | 559113 |
No of periods | 4 |
Interest rate per period | 8.00% |
PV annuity due Factor @ 6% for 7years | 3.57710 |
PV of Lease Paymenst (100000* PV factor) | 2000000 |
It is a Finance Lease to Nivtop | |
Satisfying any one of th followingit satisfies two 4 criteria makes a lease a finance lease. Here its satisfies two | |
Transfer of Ownership | No information given |
Bargain purchase option available4 | No |
Is the lease term equal to 75% or more than the estimated economic life of the property | Yes; It is 4/5 = 80% of economic life of the property |
Is present value of the minimum lease payments (excluding executory costs) equals or exceeds 90% of the fair value of the property, | Yes, it is 100% . PV of lease payments = 2000000 |
Alternate use test - Is the underlying asset is of a specialised nature | No |
It is a Sales type lease for Nosnah |
The decising criteria is the same as the lessee for the lessor' |
Journal Entries:
Journal Entries - IN the Books of Lessee - Niv top | |||
Date | Particulars | Debit | Credit |
Jan 01, 2020 | Right of use asset | 2000000 | |
Lease Payable | 2000000 | ||
Jan 01, 2020 | Lease Payable | 559113 | |
Cash | 559113 | ||
Dec 31,2020 | Interest Expense | 115271 | |
Lease Liability | 115271 | ||
Dec 31,2020 | Amortization Expense | 500000 | |
Right-to- Use Asset | 500000 | ||
(To record Amortization Expense (2000000/4) |
Journal Entries - IN the Books of Lessor - Nosnah | |||
Date | Particulars | Debit | Credit |
Jan 01, 2020 | Lease Receivable | 2000000 | |
Cost of Goods Sold | 1573000 | ||
Sales Revenue | 2000000 | ||
Inventory | 1573000 | ||
Jan 01, 2020 | Cash | 559113 | |
Lease Receivable | 559113 | ||
Dec 31,2020 | Lease Receivable | 115271 | |
Interest Revenue | 115271 | ||
Amortization Schedule for Interest Calculation:
Lease Amortization Schedule | ||||
Date | Lease Payment (A) | Interest Expense (B) = (D) *Interest Rate | Reduction in Liability (C) = (A) - (B) | Lease Liability (D) = (D) - (C) |
Jan 01, 2020 | 2000000 | |||
Jan 01, 2020 | 559113 | 559113 | 1440888 | |
Jan 01, 2021 | 559113 | 115271 | 443842 | 997046 |
Jan 01, 2022 | 559113 | 79764 | 479349 | 517697 |
Jan 01, 2023 | 559113 | 41416 | 517697 | 0 |
Total | 2236451 | 236450 | 2000000 |
Hope this helps! In case of any clarifications, kindly use the comment box below