On 21st May 2021 BOB entered into a four-year lease contract for a new machine used in the production with a contract requiring the payment of £14,930 per annum in arrears. This does not appear in the accounts above. The interest rate implicit in the lease is 7.5% and BOB uses the actuarial method to allocate interest for finance leases. The BOB’s depreciation policy for these assets applies the straight-line method over four years and there is not thought to be a residual value of the asset at the end of this period. Required: The Financial Director of other company would like a report on how the four-year lease should be accounted for and why. Prepare a note containing a full calculation of this, again explaining why the treatment is as you propose.
On 21st May 2021 BOB entered into a four-year lease contract for a new machine used in the production with a contract requiring the payment of £14,930 per annum in arrears. This does not appear in the accounts above. The interest rate implicit in the lease is 7.5% and BOB uses the actuarial method to allocate interest for finance leases. The BOB’s
Required:
The Financial Director of other company would like a report on how the four-year lease should be accounted for and why. Prepare a note containing a full calculation of this, again explaining why the treatment is as you propose.
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