On 1 April 2022, Mash Ltd enters into a five-year lease of a motor lorry. The company is required to make a lease payment of 250,000 on 1 April 2022 and five further lease payments of 212,500 each on 31 March 2023 to 2027. The company also incurs initial direct costs of 4,700. Legal title to the lorry will be transferred to Mash Ltd at the end of the lease term. The rate of interest implicit in the lease is 10% per annum. Mash Ltd prepares accounts to 31 March. Required: (1) Explain (with calculations) how this lease should be accounted for in the financial statements of Mash Ltd for each of the five years to 31 March 2027. (12 marks) (2) How should the lessor account for this lease? Assume that the lorry has a fair value at inception of 765,000 and that the lessor incurs initial direct costs of 4,350. (5 marks) Question 5-Part B (b) Blue plc acquired 60% of the ordinary shares of Red plc on 1 January 2022 and gained control. At that date the statements of financial position of the two companies were as follows: Blue Pic Red Plc 000 000 ASSETS Non-current assets Property, plant and equipment Investment in Red Current assets Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Share premium Retained earnings Current liabilities Total equity and liabilities 250 90 100 440 200 160 360 80 440 100 70 170 889288 80 20 10 110 60 170 Note: The fair value of the property, plant and equipment in Ball at 1/1/2022 was 120,000. The fair value of the non-controlling interest in Ball at 1/1/2022 was 55,000. The 'fair value method' should be used to measure the non-controlling interest. (Question continued on next page) Page 9 of 12 FA583 Financial Accounting & Reporting May/June 2022 9 of 12 Required: Calculate the value of goodwill that will be reported in the consolidated statement of financial position at 1 January 2022. (8 marks) (Total: 25 marks) On 1 April 2022, Mash Ltd enters into a five-year lease of a motor lorry. The company is required to make a lease payment of 250,000 on 1 April 2022 and five further lease payments of 212,500 each on 31 March 2023 to 2027. The company also incurs initial direct costs of 4,700. Legal title to the lorry will be transferred to Mash Ltd at the end of the lease term. The rate of interest implicit in the lease is 10% per annum. Mash Ltd prepares accounts to 31 March. Required: (1) Explain (with calculations) how this lease should be accounted for in the financial statements of Mash Ltd for each of the five years to 31 March 2027. (12 marks) (2) How should the lessor account for this lease? Assume that the lorry has a fair value at inception of 765,000 and that the lessor incurs initial direct costs of 4,350. (5 marks) Question 5-Part B (b) Blue plc acquired 60% of the ordinary shares of Red plc on 1 January 2022 and gained control. At that date the statements of financial position of the two companies were as follows: Blue Pic Red Plc 000 000 ASSETS Non-current assets Property, plant and equipment Investment in Red Current assets Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Share premium Retained earnings Current liabilities Total equity and liabilities 250 90 100 440 200 160 360 80 440 100 70 170 889288 80 20 10 110 60 170 Note: The fair value of the property, plant and equipment in Ball at 1/1/2022 was 120,000. The fair value of the non-controlling interest in Ball at 1/1/2022 was 55,000. The 'fair value method' should be used to measure the non-controlling interest. (Question continued on next page) Page 9 of 12 FA583 Financial Accounting & Reporting May/June 2022 9 of 12 Required: Calculate the value of goodwill that will be reported in the consolidated statement of financial position at 1 January 2022. (8 marks) (Total: 25 marks)