2.1 FINANCIAL REPORTING ASSIGMENT 4 ATTEMPT ALL QUESTIONS QUESTION ONE a. Identify the TWO kinds of leases stipulated in IAS 17 and compare in tabular form with at least FIVE differences. b. GAG Oil Plc has entered into agreement to lease a plant and equipment from BAJ Leasing Company Limited. The lease period of the plant and equipment is six (6) years. The agreement provides that BAJ Leasing Company Limited will incur upkeep expenses. The cost of the plant and equipment is GHC900,000, The economic useful life is 20 years. GAG Oil Plc is to pay annual lease rentals of GHC15000 in advance over 6 years after which the plant and equipment revert to the lessor. The implicit interest rate is 22% per annum which is stated below: Year 0 1 2 3 4 5 6 PV(N1) 1.0000 0.8197 0.6719 0.5507 0.4514 0.3700 0.3033 You are required to: i. Calculate the present value of the lease rental of the equipment. ii. Identify with justification the kind of lease involved iii. Advice on how to treat the lease rentals paid by GAG Oil Plc. in the financial statements QUESTION TWO Plc is considering acquiring a machine. It has two options; cash purchase at a cost of ‘A’ GHC11,420,000 or a lease. The terms of the lease are as follows: (i) The period is for four years from 1 January 2013 with an annual rental of GHC4,000,000 payable on 31 December each year. The lessee is required to pay all repairs, maintenance and other incidental costs. (ii) (iii) The interest rate implicit in the lease is 15% p.a. Note: Estimated useful economic life span of the machine is four years. You are required to: a. State the type of lease arrangement in the above transaction; giving reason(s) (2 Marks) b. Prepare a schedule of the allocation of the finance charges in the books of Plc for the ‘A’ entire lease period. (8 Marks) c. Prepare an extract of the Statement of Financial Position of Plc for the year ended 31 ‘A’ December 2013.
2.1 FINANCIAL REPORTING ASSIGMENT 4 ATTEMPT ALL QUESTIONS QUESTION ONE a. Identify the TWO kinds of leases stipulated in IAS 17 and compare in tabular form with at least FIVE differences. b. GAG Oil Plc has entered into agreement to lease a plant and equipment from BAJ Leasing Company Limited. The lease period of the plant and equipment is six (6) years. The agreement provides that BAJ Leasing Company Limited will incur upkeep expenses. The cost of the plant and equipment is GHC900,000, The economic useful life is 20 years. GAG Oil Plc is to pay annual lease rentals of GHC15000 in advance over 6 years after which the plant and equipment revert to the lessor. The implicit interest rate is 22% per annum which is stated below: Year 0 1 2 3 4 5 6 PV(N1) 1.0000 0.8197 0.6719 0.5507 0.4514 0.3700 0.3033 You are required to: i. Calculate the present value of the lease rental of the equipment. ii. Identify with justification the kind of lease involved iii. Advice on how to treat the lease rentals paid by GAG Oil Plc. in the financial statements QUESTION TWO ‘A’ Plc is considering acquiring a machine. It has two options; cash purchase at a cost of GHC11,420,000 or a lease. The terms of the lease are as follows: (i) The period is for four years from 1 January 2013 with an annual rental of GHC4,000,000 payable on 31 December each year. (ii) The lessee is required to pay all repairs, maintenance and other incidental costs. (iii) The interest rate implicit in the lease is 15% p.a. Note: Estimated useful economic life span of the machine is four years. You are required to: a. State the type of lease arrangement in the above transaction; giving reason(s) (2 Marks) b. Prepare a schedule of the allocation of the finance charges in the books of ‘A’ Plc for the entire lease period. (8 Marks) c. Prepare an extract of the Statement of Financial Position of ‘A’ Plc for the year ended 31 December 2013.
Assignment-Set-4.docx