An Auto Finance Company (AFC) is doing business forlast 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 cannot switch to Direct Debit because of certain reasons

The AFC is following IFRS for accounting. The company follows the policy to round rental amount to zero decimal places. The rentals are amortized using annuity method. The company books income on monthly basis.

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

Asset cost = 100,000

Contract terms = 48 months

Annual interest rate = 9%

Re-payment frequency = Quarterly in Arrear

RV = 10,000

Down payment = 8,000

Security deposit = 50,000

Start day of the contract = 15th February, 2018

Asset useful life = 60 months

Rental numbers 9 to 16 should be double in amount as compared to rental numbers 1 to 8 (e.g. if rental numbers 1 to 8 are 5,000 each then rental numbers 9 to 16 should be 10,000 each)

Use of XLS Goal Seek is prohibited for rental calculation

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 rentals

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

4. Calculate the AFCs achieved rate of return.

5. Prepare all accounting entries for AFC starting from contract signing till restructuring. Accounting entry must be with reference to a date

6. The AFC customer has defaulted after paying 2nd rental and now 5th rental is due. Customer has requested and AFC agreed to restructure the lease facility by increasing interest rate 1 % p.a. and recovering the interest overdue and penalty amount upfront. The company charges 20% p.a. penalty for overdue on actual days basis. Please workout the restructured rental amount, New Amortization schedule and the accounting treatment at restructuring this contract. Please keep the Zero rental or fix amount rental same as mentioned in the original scenario