The Mission Company Ltd, whose year-end is 31 December, has acquired two items of machinery on leases,
Question:
Item Y: Ten annual instalments of £20,000 each, the first payable on 1 January 20X0. The machine was completely installed and first operated on 1 January 20X0 and its purchase price on that date was £160,000. The machine has an estimated useful life of ten years, at the end of which it will be of no value.
Item Z: Ten annual instalments of £30,000 each, the first payable on 1 January 20X2. The machine was completely installed and first operated on 1 January 20X2 and its purchase price on that date was £234,000. The machine has an estimated useful life and is used for 12 years, at the end of which it will be of no value.
The Mission Company Ltd accounts for finance charges on finance leases by allocating them over the period of the lease on the sum of the digits method.
Depreciation is charged on a straight-line basis. Ignore taxation.
Required:
(a) Calculate and state the charges to the statement of comprehensive income for 20X6 and 20X7 if the leases were treated as operating leases.
(b) Calculate and state the charges to the statement of comprehensive income for 20X6 and 20X7 if the leases were treated as finance lease and capitalised using the sum of the digits method for the finance charges.
(c) Show how items Y and Z should be incorporated in the statement of financial position, and notes thereto, at 31 December 20X7, if capitalised.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
Question Posted: