International Financial Reporting Standards_guide.pdf

162 Chapter 14 Leases (IAS 17)
EXAMPLES: LEASES
EXAMPLE 14.1
A manufacturing machine that costs $330,000 is acquired by a finance lease agreement under
the following terms:
■ The effective date is January 1, 20X2.
■ The lease term is three years.
■ Installments of $72,500 are payable half-yearly in arrears.
■ The effective rate of interest is 23.5468 percent per year.
■ A deposit of $30,000 is immediately payable at inception of the lease.
EXPLANATION
The amortization table for this transaction would be as follows:
Installment $ Interest $ Capital $ Balance $
Cash Price 330,000
Deposit 30,000 – 30,000 300,000
Installment 1 72,500 35,320 37,180 262,820
Installment 2 72,500 30,943 41,557 221,263
Subtotal 175,000 66,263 108,737
Installment 3 72,500 26,050 46,450 174,813
Installment 4 72,500 20,581 51,919 122,894
Installment 5 72,500 14,469 58,031 64,863
Installment 6 72,500 7,637 64,863 –
TOTAL 465,000 135,000 330,000
The finance lease would be recognized and presented in the financial statements as follows:
Books of the Lessee
An asset of $330,000 will be recorded and a corresponding liability will be raised on January
1, 20X2.
If it is assumed that the machine is depreciated on a straight-line basis over six years, the
following expenses would be recognized in the Statement of Comprehensive Income for the
first year:
Depreciation (330,000/6) $55,000
Finance lease charges (35,320 + 30,943) $66,263
The Statement of Financial Position at December 31, 20X2, would reflect the following
balances:
Machine (330,000 − 55,000)
$275,000 (Asset)
Long-term finance lease liability
$221,263 (Liability)