Yes, we agree with the senior accountants analysis of accounting the letting as a finance consume along with the Journal entries utilize in Year 1 to record payments. Step 1, depicts the senior accountants argumentation for his classification of the lease, which we agree is correct. Since the lease term is for three historic period and the useful life of the equipment is four years, we conclude that the lease is for a major part of the useful life of the asset and wherefore a finance lease under IAS 17-10 (c ). Another alternate(a) utilise by the senior accountant in find classification was IAS 17-10 (d) which states that a lease can also be classified as a finance lease if, at the inception of the lease the present think of of the minimum lease payments amounts to at least substantially all of the fair measure out of the contract asset. The fair value of the equipment being leased amounts to $265,000 and for IAS 17-10 (d) to apply the present value of the minimum lease payments essential amount to substantially all of the fair value of the equipment.
In our determination of the present value of the minimum lease payments we touch to IAS 17, paragraph 20: รข€¦The discount dictate to be used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to destine; if not, the lessees incremental borrowing rate shall be used. In our case the lease cost provide the Lessors implicit rate of 10%, which we will use to throttle the present value of the minimum lease payments. Since the lease terms is for a period of three years we will grimace at the ordinary annuity table using our implicit rate of 10% and obtain a discount rate of 2.48685. Since the lease term contains a guaranteed residual value of $20,000 we moldiness use its present value in our calculation. Therefore, the present value of minimum lease payments is $263,716 ($100,000 x 2.4869) + ($20,000 x...If you want to get a full essay, order it on our website: Ordercustompaper.com
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