On 1 January 2020, Moon Co entered into a five-year lease of equipment which has a remaining useful life of eight years. Lease payments are BD84,000 per annum, payable at the beginning of each year. Moon Co incurred initial direct costs of BD36,000 and received lease incentives of BD4,400. There is no transfer of the asset at the end of the lease and no purchase option. The interest rate implicit in the lease is 7%. At the commencement date of the lease, Moon Co paid initial BD84,000, incurred the direct costs and received the lease incentives. Moon Co uses the straight-line method of depreciation. (Note: Present value annuity factor for four years and 7% is 3.387). Required: (a) Prepare the relevant extracts from the financial statements of Moon Co for the year ended 31 December 2020 (Note: Show your workings and round to the nearest BD). (b) Using the conceptual framework for financial reporting, discuss the rationale for and accounting implications of adopting IFRS 16 Leases.
On 1 January 2020, Moon Co entered into a five-year lease of equipment which has a remaining useful life of eight years. Lease payments are BD84,000 per annum, payable at the beginning of each year. Moon Co incurred initial direct costs of BD36,000 and received lease incentives of BD4,400. There is no transfer of the asset at the end of the lease and no purchase option. The interest rate implicit in the lease is 7%. At the commencement date of the lease, Moon Co paid initial BD84,000, incurred the direct costs and received the lease incentives. Moon Co uses the straight-line method of
Required:
(a) Prepare the relevant extracts from the financial statements of Moon Co for the year ended 31 December 2020 (Note: Show your workings and round to the nearest BD).
(b) Using the conceptual framework for financial reporting, discuss the rationale for and accounting implications of adopting IFRS 16 Leases.
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