On 1 January 2020, the company entered into a lease agreement for a production equipment which has a useful economic life of 8 years. The lease term is for four years and Kamel agrees to pay annual rent of GHc50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5% and the lessee's incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GHe 130,026. Kamel paid legal fees of GHe 1,000 to set up the lease.
On 1 January 2020, the company entered into a lease agreement for a production equipment which has a useful economic life of 8 years. The lease term is for four years and Kamel agrees to pay annual rent of GHc50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5% and the lessee's incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GHe 130,026. Kamel paid legal fees of GHe 1,000 to set up the lease.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Question 7 - IFRS 16 LEASES
Kamel Ltd (Kamel) is a manufacturing company located in the Savannah Region. The reporting
date of Kamel is 31 December and the company reports under International Financial Reporting
Standards (IFRSs). Kamel intends to expand its production to take advantage of emerging
economic activities in the new region.
On 1 January 2020, the company entered into a lease agreement for a production equipment
which has a useful economic life of 8 years. The lease term is for four years and Kamel agrees
to pay annual rent of GH¢50,000 commencing on 1 January 2020 and annually thereafter. The
interest rate implicit in the lease is 7.5% and the lessee's incremental borrowing rate is 10%.
The present value of lease payments not yet paid on 1 January 2020 is GH¢130,026. Kamel
paid legal fees of GH¢1,000 to set up the lease.
12
Required:
Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss
for 2020 and 2021, showing how Kamel should account for this transaction.
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