Question
Use the following information to calculate the finance charge of Placido Ltd for the leasing of a machine using the sum of digits methods for
Use the following information to calculate the finance charge of Placido Ltd for the leasing of a machine using the sum of digits methods for the years 2015, 2016 and 2017 (show your workings clearly): ? Lease commencing on 1 January 2015 ? Term 3 years ? Purchase price of new machine 16,000 ? Annual payments (payable in advance) 5,000 ? Borrowing rate 8% (40 marks) (b) Explain what is understood by lease capitalization. What are the arguments for and against lease capitalization? (40 marks) (c) Explain the key difference in accounting treatment for operating and financing lease for the lessee?
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