On 1 January 2022, Enola plc entered a six-year lease contract with Maverick plc for a brand-new electric delivery vehicle. The contract requires a payment of £8,000 every year in advance. The interest rate implicit in the lease is 7% and Enola plc uses actuarial method to allocate interest for finance leases. The economic life of the vehicle is estimated to be 90 months and the residual value of the vehicle at the end of six years will be £1,000. The newly appointed accountant did not take any account related to this leasing (including the payment made at the beginning of the year). Requirements: The Financial Director of Enola plc would like a report on how the six-year lease should be accounted for. Prepare a note containing the full calculation and explanation of your proposed treatment with reference to International Financial Reporting Standards.
On 1 January 2022, Enola plc entered a six-year lease contract with Maverick plc for a brand-new electric delivery vehicle. The contract requires a payment of £8,000 every year in advance. The interest rate implicit in the lease is 7% and Enola plc uses actuarial method to allocate interest for finance leases. The economic life of the vehicle is estimated to be 90 months and the residual value of the vehicle at the end of six years will be £1,000. The newly appointed accountant did not take any account related to this leasing (including the payment made at the beginning of the year).
Requirements:
The Financial Director of Enola plc would like a report on how the six-year lease should be accounted for. Prepare a note containing the full calculation and explanation of your proposed treatment with reference to International Financial Reporting Standards.
Step by step
Solved in 2 steps
