Homework Answers
Answer :
(1)
(a)
| Rental payment | $2,00,000 |
| P.V.A.F @4% for 20 payments | 14.13 |
| PV of rental payment | $28,26,787.88 |
| Add : PV of GRV | 46,319.35 |
| PV of minimum lease payments | $28,73,107.23 |
As question does not specify fair value at inception of Lease
Assumption here made is PV of MLP covers at least 90% of fair value asset
Therefore the given lease is a capital lease
(b) Present value of lease payment to be recorded as liability is
$28,73,107.23
(c)
| Date | Opening balance | Interest | Installment | Principal repayment | Closing balance |
| 01.Jan.19 | $28,73,107.23 | 0 | $2,00,000 | $2,00,000 | $26,73,107.23 |
| 01.Jul.19 | 26,73,107.23 | $1,06,924.29 | $2,00,000 | $93,076 | $25,80,031.52 |
| 01.Jan.20 | 25,80,031.52 | $,03,201.26 | $2,00,000 | $96,799 | $24,83,232.78 |
| 01.Jul.20 | 24,83,232.78 | $99,329.31 | $2,00,000 | $1,00,671 | $23,82,562.09 |
| 01.Jan.21 | 23,82,562.09 | $95,302.48 | $2,00,000 | $1,04,698 | $22,77,864..57 |
| 01.Jul.21 | 22,77,864.57 | $91,114.58 | $2,00,000 | $1,08,885 | $21,68,979.16 |
(d)Journal Entries
| Date | Particulars | Debit | Credit |
| 01.Jan.19 | Leased Asset | $28,73,107 | |
| Lease liability | $28,73,107 | ||
| 01.Jan.19 | Lease liability | $2,00,000 | |
| Cash | $2,00,000 | ||
| 01.Jul.19 | Finance charge | $1,06,924 | |
| Lease liability | $1,06,924 | ||
| 01.Jul.19 | Lease liability | $2,00,000 | |
| Cash | $2,00,000 |
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