On 1 January 2015, a company which prepares financial statements to 31 December each year acquires a machine on a finance lease. The fair value of the machine on 1 January 2015 is £280,00 and useful economic life is six years. The lease period is five years and the company is required to make five lease payments of £60,00 each. These payments fall due on 1 Jan each year. Discount rate is 4%. The company uses the sum of digit method in the allocation of finance charge. Identify the finance charge in Income Statement for year end 31 Dec 2015.

On 1 January 2015, a company which prepares financial statements to 31 December each year acquires a machine on a finance lease. The fair value of the machine on 1 January 2015 is £280,00 and useful economic life is six years. The lease period is five years and the company is required to make five lease payments of £60,00 each. These payments fall due on 1 Jan each year. Discount rate is 4%. The company uses the sum of digit method in the allocation of finance charge. Identify the finance charge in Income Statement for year end 31 Dec 2015.

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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Question

On 1 January 2015, a company which prepares financial statements to 31 December each year
acquires a machine on a finance lease. The fair value of the machine on 1 January 2015 is £280,000
and useful economic life is six years.
The lease period is five years and the company is required to make five lease payments of £60,000
each. These payments fall due on 1 Jan each year. Discount rate is 4%.
The company uses the sum of digit method in the allocation of finance charge.
Identify the finance charge in Income Statement for year end 31 Dec 2015.
£8,880
£20,000
O £22,200
O £11,100

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