On February 20, 2015, Marcos Group purchased a machine for R($1),200,000 for the purpose of leasing it.

Question:

On February 20, 2015, Marcos Group purchased a machine for R\($1\),200,000 for the purpose of leasing it. The machine is expected to have a 10-year life, no residual value, and will be depreciated on the straight-line basis. The machine was leased to Sage Company on March 1, 2015, for a 4-year period at a monthly rental of R\($15\),600. There is no provision for the renewal of the lease or purchase of the machine by the lessee at the expiration of the lease term. Marcos paid R\($30\),000 of commissions associated with negotiating the lease in February 2015.

Instructions

(a) What expense should Sage Company record as a result of the facts above for the year ended December 31, 2015? Show supporting computations in good form.

(b) What income or loss before income taxes should Marcos record as a result of the facts above for the year ended December 31, 2015? (Hint: Amortize commissions over the life of the lease.)

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Intermediate Accounting IFRS Edition

ISBN: 9781118443965

2nd Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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