Question

 The net leased equipment reported on lessee's book on December 31, 2010 should be 

• $55,600 

• $73,596 

• $65,620 

• $74,852

Answer 1

As per new accounting standard on leases:

1. All the lease payments shall be considered as lease liability

2. All the lease payments discounted at lessee's incremental borrowing rate shall be accounted for as Right of use asset.

Therefore, the calculation would be as follows:

Year	r	Lease rentals	Excecutionary cost	PV of cash inflow
1	10%	18000	2000	18181.8
2	10%	18000	2000	16528.9
3	10%	18000	2000	15026.3
4	10%	18000	2000	13660.3
5	10%	18000	2000	12418.4
5	10%	8000	0	4967.4
		Total		80783.1
			Amortization per year	15163.1
			Net value on 31st Dec 2010	65620.0

Present value has been calculated using the formula : Payment /(1+r)^t

For eg 20000/(1+.10)^1= 18181.8

Guranteed residual value is counted as lease payment which is also considered as part of lease liability and which is why 8000 has been added to the value of lease rentals.

Amortization per year = Total value / number of years

Net value as at the end of year = Total value as on Jan1, 2010 - amortization for the year 2010= Net Leased value as on 31 Dec 2010 = 80783 - 15163 = 65620

Amortisation = Total of present value of lease payments = 75815/5 = 15163