Question
On 1 April 20X7, Fino increased the operating capacity of its plant. Due to a lack of liquid funds it was unable to buy the
On 1 April 20X7, Fino increased the operating capacity of its plant. Due to a lack of liquid funds it was unable to buy the required plant which had a cost of $350,000. On the recommendation of the finance director, Fino entered into an agreement to lease the plant from the manufacturer. The lease required four annual payments in advance of $100,000 each commencing on 1 April 20X7. The rate of interest implicit in the lease is 10%. The plant would have a useful life of four years and would be scrapped at the end of this period. The finance director believes the lease to be an operating lease. Assuming this is a finance lease, what is the total charge to profit or loss for the year ended 30 September 20X7 in respect of the plant?
a. $56,250 b. $12,500 c. $68,750 d. $25,000
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