Date of entering lease 1 July 2019 Duration of lease 5 years Life of asset 6 years Unguaranteed residual value $40,000 Lease payments inception (at the start) $60,000 Annual payments (5) $65,000 Implied rate 11.0 %   Required: Determine the Fair Value (rounded off) of the leased asset.

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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Date of entering lease 1 July 2019 Duration of lease 5 years Life of asset 6 years Unguaranteed residual value $40,000 Lease payments inception (at the start) $60,000 Annual payments (5) $65,000 Implied rate 11.0 %

 

Required: Determine the Fair Value (rounded off) of the leased asset.

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Fair value of the lease is the present value of future lease payments. Lease payments includes initial payment, annual payment and unguaranteed residual value. A lease is treated as financial lease if  lessor will recover a large part or all of the cost or lease period is equal to useful life of asset.

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