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Ias17 Q6

Miracle Textile Limited acquired a machine on lease for $20 million with a lease term of 4 years and an option to purchase for $2 million at the end. The financial statements for the year ended 30 June 2015 show depreciation of $2 million and interest expense of approximately $1.67 million, with total non-current assets under finance lease valued at $16 million. The finance lease obligation is detailed with current and non-current liabilities totaling approximately $10.64 million and $6.51 million, respectively.

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33 views3 pages

Ias17 Q6

Miracle Textile Limited acquired a machine on lease for $20 million with a lease term of 4 years and an option to purchase for $2 million at the end. The financial statements for the year ended 30 June 2015 show depreciation of $2 million and interest expense of approximately $1.67 million, with total non-current assets under finance lease valued at $16 million. The finance lease obligation is detailed with current and non-current liabilities totaling approximately $10.64 million and $6.51 million, respectively.

Uploaded by

Thubelihle Ndlovu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

IAS 17 Question 6

QUESTION 6: IAS 17 LEASES

On 1 July 2013, Miracle Textile Limited (MTL) acquired a machine on lease, from a bank.
Details of the lease are as follows:

(i) Cost of machine is $20 million.


(ii) The lease term and useful life is 4 years and 10 years respectively.
(iii) Installment of $5.80 million is to be paid annually in advance on 1 July.
(iv) The interest rate implicit in the lease is 15.725879%.
(v) At the end of lease term, MTL has an option to purchase the machine on payment of $2
million. The fair value of the machine at the end of lease term is expected to be $3 million.
MTL depreciates the machine on the straight line method to a nil residual value.

Required:
Prepare relevant extracts of the statement of financial position and related notes to the financial
statements for the

Page 1 of 3 (kashifadeel.com)
IAS 17 Question 6

ANSWER – QUESTION 6: IAS 17 LEASES

MTL’s Statement of Comprehensive Income 2015 2014


for the year ended 30 June 2015 $ $
Depreciation $20m / 10 years 2000,000 2,000,000
Interest expense W1 1,672,144 2,233,075

MTL’s Statement of financial position 2015 2014


as at 30 June 2015 $ $
Non-current assets
PPE under finance leaseN1 16,000,000 18,000,000

Non-current liabilities
Finance lease obligation W1& N2 6,509,219 10,633,075

Current liabilities
Finance lease obligation W1& N2 4,127,856 3,566,925
Interest payable W1 1,672,144 2,233,075

Note 1
2015 2014
PPE under Finance Lease $ $
Cost
Opening balance 20,000,000 -
Additions - 20,000,000
20,000,000 20,000,000
Accumulated depreciation
Opening balance (2,000,000) -
For the year (2,000,000) (2,000,000)
(4,000,000) (2,000,000)
Balance as at June 30 16,000,000 18,000,000

Note 2
30-06-2015 30-06-2014
Obligation under Future Future
MLP PV of MLP MLP PV of MLP
finance lease Interest Interest
Up to one year 5,800,000 1,672,144 4,127,856 5,800,000 2,233,075 3,566,925
Two to five years 7,800,000 1,294,781 6,505,219 13,600,000 2,966,926 10,633,075
More than five years - - - - - -
TOTAL 13,600,000 2,966,926 10,633,075 19,400,000 5,200,000 14,200,000

The company has entered into a finance lease agreement with a bank in respect of a machine.
The finance lease liability bears interest at the rate of 15.725879% per annum. The company has
option to purchase the machine by paying an amount of $2 million at the end of lease term. The
lease rentals are payable in annual installments ending in June 2015.There are no financing
restrictions in the lease agreement.

Page 2 of 3 (kashifadeel.com)
IAS 17 Question 6

W1 Finance Lease Schedule (Advance Payments)


Balance at Rental Principal Balance at end Interest @
Time
beginning $ $ element $ $ 15.73% $
01-07-13 20,000,000 5,800,000 5,800,000 14,200,000 2,233,075
01-07-14 14,200,000 5,800,000 3,566,925 10,633,075 1,672,144
01-07-15 10,633,075 5,800,000 4,127,856 6,505,219 1,023,003
01-07-16 6,509,219 5,800,000 4,776,997 1,728,222 271,778
30-06-16 1,728,222 2,000,000 1,728,222 0 0

Page 3 of 3 (kashifadeel.com)

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