HUMPHREY Limited owns a property that is used as itshead office in Pretoria. On 1st January 2024, itscarrying value was R20 million and its remaining usefullife was 20 years. On 1st July 2024, the businessrecognized cheaper premises found for use as the headoffice. It was therefore decided to lease the propertyunder an operating lease. The property was valued by aqualified professional who assessed the property'svalue as R21 million on 1st July and R21.6 million on 31st December 2024.Required:Discuss the differences between operating and financeleases (5)Discuss the conditions that need to be met for a lease tobe recognised as a finance lease (5)Explain the accounting treatment of the property in thefinancial statements for the year ended 31st December2024. (Hint: Income statement and SOFP extractincluding calculations).

(a) Operating leases and finance leases are two different methods of leasing assets, each with its…

Answered: HUMPHREY Limited owns a property that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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