An Auto Finance Company $($AFC$)$ is doing business for last $20$ years and offers various financial products including finance lease, hire purchase and operating lease.

AFC takes postdated cheques from customers in advance and deposits with banks on due dates. AFC enters the realization date of all cheques in system on daily basis. Average numbers of daily deposited cheques are $700.$ Around $10\%$ of deposited cheques gets returned unpaid. The unpaid cheques are deposited next day into bank.

The AFC is following IFRS for accounting.

Rentals are amortized using annuity method.

Company books income on monthly basis.

The AFC has extended a lease facility to a Ltd$.$ company, the extracts of which are as under:

Difficulty Level $1$:

$$ Asset cost $=100,000$

$$ Contract terms $=48$ months

$$ Annual interest rate $=12\%$

$$ Re$-$payment frequency $=$ Quarterly in Advance

$$ RV $=10,000$ and receivable at the end of contract

$$ Down payment $=8,000$

$$ Other direct income receivable from customer at beginning of the contract $=300$

$$ Start day of the contract $=15$th February $2018$

$$ Asset useful life $=60$ months

$$ Rental numbers $5$ & $6$ are $5,200$ each

$$ All remaining rentals must be of uniform amount

You are required to:

$1.$ Determine the lease type according to IFRS definitions for both lessee and lessor. Please mention all criteria of IFRS and identify that which one is met and which one is not

$2.$ Calculate periodic lease rental

$3.$ Based on point $2$ above, prepare amortization schedule for AFC

$4.$ Prepare all accounting entries for AFC and these should be with reference to date.

You are free to:

$$ Take assumptions and approach this assignment accordingly.

$$ Seek advice from others

$$ Consult any books and websites