Question 3 Bridgend Ltd started trading on 1 January 2021 with share capital of 105,000. The company needed a machine from 1 January 2021, costing 75,000. The machine had a useful economic life of 10 years with zero residual value. If the company leased the machine, annual rental would be 13,275 over 10 years, payable in arrears starting on 31 December 2021. The company earns gross revenues of 27,000 in 2021 and incurs operating costs before rental charges and depreciation of 10,125. The rate implicit in the finance lease is 12%. Required: (a) Calculate the statement of comprehensive income for the year ended 31 December 2021 and the statement of financial position as at 31 December 2021 for Bassoon Ltd if it: (i) buys the machine for cash; (ii) leases the machine and treats the lease as an operating lease (please assume that this is allowable for the current scenario above); (iii) leases the machine and treats the lease as a finance lease. In each case, provide calculations to show how you arrive at net current assets. (14 marks) (b) Discuss the impact on Bridgend's key financial ratios in the three above scenarios, (i) cash acquisition of asset; (ii) operating lease and (iii) finance lease. Your answer to this part of the question should not be more than 180 words. (6 marks) (Total: 20 marks) Question 3 Bridgend Ltd started trading on 1 January 2021 with share capital of 105,000. The company needed a machine from 1 January 2021, costing 75,000. The machine had a useful economic life of 10 years with zero residual value. If the company leased the machine, annual rental would be 13,275 over 10 years, payable in arrears starting on 31 December 2021. The company earns gross revenues of 27,000 in 2021 and incurs operating costs before rental charges and depreciation of 10,125. The rate implicit in the finance lease is 12%. Required: (a) Calculate the statement of comprehensive income for the year ended 31 December 2021 and the statement of financial position as at 31 December 2021 for Bassoon Ltd if it: (i) buys the machine for cash; (ii) leases the machine and treats the lease as an operating lease (please assume that this is allowable for the current scenario above); (iii) leases the machine and treats the lease as a finance lease. In each case, provide calculations to show how you arrive at net current assets. (14 marks) (b) Discuss the impact on Bridgend's key financial ratios in the three above scenarios, (i) cash acquisition of asset; (ii) operating lease and (iii) finance lease. Your answer to this part of the question should not be more than 180 words. (6 marks) (Total: 20 marks)
