Sam Limited has entered into a finance lease in respect of a crane. The terms of the lease are:

1. Three-year primary period with a quarterly rent payable in advance of €2,500, ie.

total payment of €30,000; and 2. Ten-year secondary period at a nominal rent (which can be ignored for the purposes of this question).

The cost of a new crane, if purchased outright, would be €25,000. Its estimated useful life is six years with a nil scrap value. Sam Limited uses the straight-line basis of depreciation for plant.

It is not reasonably certain that ownership of the asset will transfer to Sam Limited.

Requirement

(a) Compute the charge in the statement of comprehensive income, assuming the lease is an operating lease.

(b) Compute the charge in the statement of comprehensive income, assuming the leasing commitment is capitalised using the:
(i) sum-of-the-digits approach, spreading the interest charge over 12 quarters;
(ii) actuarial approach.

(c) Show the relevant entries in the statement of financial position for the first year, using the actuarial method.
Note: The implicit rate of interest in each lease payment is 3.5%.