Fields Finance Ltd. (FFL), a leasing company that reports under ASPE, is in the process of preparing its financial statements for the year ended June 30, Year 1. The following leases were entered into: Lease 1: On February 1, Year 1, the company entered into a lease contract in respect of plant and machinery for a production line. The details are as follows: 12 quarterly rental payments: $ 11,000 (first payment on April 30, Year 1) Period of contract: 3 years (from February 1, Year 1) Fair value of equipment (cost to FFL): $200,000 Guaranteed residual value — end of lease term: $ 60,000 Estimated residual value — end of useful life: $ 20,000 Economic life: 8 years Implicit rate: 12% Lease 2: On April 1, Year 1, the company entered into a lease contract in respect of a fleet of distribution vehicles. This lease involves the following payments: Initial rental payment: $ 30,000 (due April 1, Year 1) 10 quarterly rental payments: $ 6,000 (first payment due on July 1, Year 1) Period of contract: 3 years (from April 1, Year 1) Fair value of equipment (cost to FFL): $190,000
Fields Finance Ltd. (FFL), a leasing company that reports under ASPE, is in the process of preparing its financial statements for the year ended June 30, Year 1.
The following leases were entered into:
Lease 1: On February 1, Year 1, the company entered into a lease contract in respect of plant and machinery for a production line. The details are as follows:
12 quarterly rental payments: $ 11,000 (first payment on April 30, Year 1)
Period of contract: 3 years (from February 1, Year 1)
Fair value of equipment (cost to FFL): $200,000
Guaranteed residual value — end of lease term: $ 60,000
Estimated residual value — end of useful life: $ 20,000
Economic life: 8 years
Implicit rate: 12%
Lease 2: On April 1, Year 1, the company entered into a lease contract in respect of a fleet of distribution vehicles. This lease involves the following payments:
Initial rental payment: $ 30,000 (due April 1, Year 1)
10 quarterly rental payments: $ 6,000 (first payment due on July 1, Year 1)
Period of contract: 3 years (from April 1, Year 1)
Fair value of equipment (cost to FFL): $190,000
Unguaranteed residual value — end of lease term: $120,000
Estimated residual value — end of useful life: $ 60,000
Economic life: 6 years
Implicit rate: 12%
FFL
I want to know when we calculate the PV of the lease, what amount should we use as the FV in both lease? Should we use the residual value at the lease term or the residual value at the end of the useful life?
And how to calculate the PV in lease 2? As there is a lump sum payment.
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