Question No 1.

A lease was signed on January 1, 2021 for 5 years. Annual rentals of Rs.
10,000 were payable in arrears. Fair value of the equipment is Rs 32,
743. Interest rate implicit in the lease is 16% per annum. Lessee has a
policy to depreciate this class of asset on straight line basis over ots
useful life.
Required :
1 Calculate the Present Value of Lease Payment
2 Prepare Lease amortization Schedule
3 Prepare Journal entries in the books of Lessee

Solution

Annual Rentals 10,000

Interest rate 16%
Lease Term 5

1. PV of LP
Rental 1-(1+i)^-n 3.274293653661
i
3.27429365366
32,743 32,743

2. Lease Amortization Schedule

Date Installment Interest Principle Balance

1/1/2021 32,743
12/31/2021 10,000 5,239 4,761 27,982
12/31/2022 10,000 4,477 5,523 22,459
12/31/2023 10,000 3,593 6,407 16,052
12/31/2024 10,000 2,568 7,432 8,621
12/31/2025 10,000 1,379 8,621 -
-

3. General Journal

Date Narration Debit Credit

1/1/2021 Right of Use Asset 32,743

Lease Obligation 32,743

(an asset obtained on Finance Lease)

12/31/2022 Lease Obligation 4,761

Finance Charges 5,239
Bank 10,000

(Payment of lease installment)

 12/31/2022 Depreciation Expense 6,549
Right of Use Asset 6,549
(Annual Depreciation)

Extracts from the Financial Statements of the Lessee

ABC Company limited

Statement of Financial Position
As at December 31, 2021

Assets Rs.

NoN Current Assets

Right of Use Assets 26,194

Liabilities

NoN Current Liabilities

Obligations under Lease 22,459

Current Liabilities
Current Portion of Obligations under Lease 5,523
Finance Charges Payable -

ABC Company limited

Statement of Comprehensive Income
As at December 31, 2021

Depreciation Expense 6,549

Financial Charges 5,239
22,459
(From Yr 3-5)

Yr 2
Question No 2. Payment in advance

A lease was signed on January 1, 2021 for 4 years. Annual rentals of Rs.
113,273 were payable in advance. Fair value of the equipment is Rs
400,000. Interest rate implicit in the lease is 9% per annum. Lessee has
a policy to depreciate this class of asset on straight line basis over
ots useful life.
Required :
1 Calculate the Present Value of Lease Payment
2 Prepare Lease amortization Schedule
3 Prepare Journal entries in the books of Lessee

Solution

Annual Rentals 113,273.0

Interest rate 9%
Lease Term 4

1. PV of LP
113273 +113,273 1-(1+i)^-(n-1)
i
2.53129466599
400,000

2. Lease Amortization Schedule

Date Installment Interest Principle Balance

1/1/2021 400,000
1/1/2021 113,273 - 113,273 286,727
1/1/2022 113,273 25,805 87,468 199,260
1/1/2023 113,273 17,933 95,340 103,920
1/1/2024 113,273 9,353 103,920 -

3. General Journal

Date Narration Debit Credit

1/1/2021 Right of Use Asset 400,000

Lease Obligation 400,000

(an asset obtained on Finance Lease)

1/1/2021 Lease Obligation 113,273

Finance Charges
Bank 113,273

(Payment of lease installment)

 1/1/2021 Depreciation Expense 100,000
Right of Use Asset 100,000
(Annual Depreciation)

Extracts from the Financial Statements of the Lessee

ABC Company limited

Statement of Financial Position
As at December 31, 2021

Assets Rs.

NoN Current Assets

Right of Use Assets 300,000

Liabilities

NoN Current Liabilities

Obligations under Lease 199,260

Current Liabilities
Current Portion of Obligations under Lease 87,468
Finance Charges Payable 25,805

ABC Company limited

Statement of Comprehensive Income
As at December 31, 2021

Depreciation Expense 100,000

Financial Charges 25,805

Notes to the Financial Statements

ABC Company limited
As at December 31, 2021

Maturity Analysis

Less than one year 113,273

One to two years 113,273
Two to three years 113,273
Three to Four years -
Four to five years -
More than Five years -
Total 339,819
Question No 3 Payment in advance with down payment

Rise co lease an asset on following terms

Fair value of asset Rs 57,000

Lease Term Years 5
Inception of Lease 1-Jan-21
Annual Payments in advance Rs/ year 15,000
Down payment Rs 5,000
Interest rate 10%

Required :
1 Calculate the Present Value of Lease Payment
2 Prepare Lease amortization Schedule
3 Prepare Journal entries in the books of Lessee

Solution

Annual Rentals 15,000

Interest rate 10%
Lease Term 5

1. PV of LP
Down Payment + Rental + Rental X1-(1+i)^-n-1
i
3.16986544635
67,548

2. Lease Amortization Schedule

Date Installment Interest Principle Balance

67,548
1/1/2021 20,000 20,000 47,548
1/1/2022 15,000 4,755 10,245 37,303
1/1/2023 15,000 3,730 11,270 26,033
1/1/2024 15,000 2,603 12,397 13,636
12/31/2024 15,000 1,364 13,636 -

3. General Journal

Date Narration Debit Credit

1/1/2021 Right of Use Asset 67,548

 Lease Obligation 67,548

(an asset obtained on Finance Lease)

1/1/2021 Lease Obligation 20,000

Bank 20,000
(Recording Down Payment)

1/1/2022 Lease Obligation 10,245

Finance Charges 4,755
Bank 15,000

(Payment of lease installment)

12/31/2023 Depreciation Expense 13,510

Right of Use Asset 13,510
(Annual Depreciation)
Shrub co lease an asset on following terms

Fair value of asset Rs 324,868

Question No 4. Payment in arears with down payment

Lease Term Years 6

Inception of Lease 1-Jan-21
Annual Payments in arrears Rs/ year 70,000
Down payment on Jan 1, 2021 Rs 20,000
Interest rate 10%

Required :
1 Calculate the Present Value of Lease Payment
2 Prepare Lease amortization Schedule
3 Prepare Journal entries in the books of Lessee

Solution

Annual Rentals 70,000

Interest rate 10%
Lease Term 6

1. PV of LP
Down Payment + Rental X 1-(1+i)^-n
i
4.355260699462
324,868

2. Lease Amortization Schedule

Date Installment Interest Principle Balance

###
1/1/2021 20,000 - 20,000 ###
12/31/2021 70,000 30,487 39,513 ###
12/31/2022 70,000 26,536 43,464 ###
12/31/2023 70,000 22,189 47,811 ###
12/30/2024 70,000 17,408 52,592 ###
12/30/2025 70,000 12,149 57,851 63,636
12/30/2026 70,000 6,364 63,636 -

3. General Journal

Date Narration Debit Credit

1/1/2021 Right of Use Asset 324,868

Lease Obligation ###

(an asset obtained on Finance Lease)

 1/1/2021 Lease Obligation 20,000
Bank 20,000
(Recording Down Payment)

12/31/2021 Lease Obligation 39,513

Finance Charges 30,487
Bank 70,000

(Payment of lease installment)

12/31/2021 Depreciation Expense 54,145

Right of Use Asset 54,145
(Annual Depreciation)
Question No 5. Payment in advanxe with BPO

Rise co lease an asset on following terms

Fair value of asset Rs 82,350

Lease Term Years 4
Inception of Lease 1-Jan-21
Annual Payments in advance Rs/ year 22,000
Purchase option with the payment at end Rs 10,000
Interest rate 11%

Required :
1 Calculate the Present Value of Lease Payment
2 Prepare Lease amortization Schedule
3 Prepare Journal entries in the books of Lessee

Solution

Annual Rentals 22,000

Interest rate 11%
Lease Term 4

1. PV of LP
Rental +Rental 1-(1+i)^-n-1 + BPO X (1+i)^-
i
2.443714715
82,349

2. Lease Amortization Schedule

Date Installment Interest Principle Balance

82,349
1/1/2021 22,000 - 22,000 60,349
1/1/2022 22,000 6,638 15,362 44,987
1/1/2023 22,000 4,949 17,051 27,936
1/1/2024 22,000 3,073 18,927 9,009
12/30/2024 10,000 991 9,009 0

3. General Journal

Date Narration Debit Credit

1/1/2021 Right of Use Asset 82,349

 Lease Obligation 82,349

(an asset obtained on Finance Lease)

1/1/2022 Lease Obligation 22,000

Finance Charges
Bank 22,000

(Payment of lease installment)

1/1/2022 Depreciation Expense 20,587

Right of Use Asset 20,587
(Annual Depreciation)

12/30/2024 Lease Obligations 9,009

Finance Charges 991
Bank 10,000
(BPO Payment)
+ BPO X (1+i)^-n
Question No 6. Payment in advanxe with Guaranted Residual Value

Rise co lease an asset on following terms

Fair value of asset Rs ###

Lease Term Years 5
Inception of Lease 1-Jan-21
Annual Payments in advance Rs/ year ###
Residual value at end of lease term,
Guaranted by the lessee (GRV) Rs 500,000
Interest rate 9%
Economic Life of Asset Years 5

Required :
1 Calculate the Present Value of Lease Payment
2 Prepare Lease amortization Schedule
3 Prepare Journal entries in the books of Lessee

Solution

Annual Rentals 1,100,000

Interest rate 9%
Lease Term 5

1. PV of LP
Rental + Rental X 1-(1+i)^-n- + GRV X (1+i)^-n
i
3.23971987705337
4,988,658

2. Lease Amortization Schedule

Date Installment Interest Principle Balance

4,988,658
1/1/2021 1,100,000 - ### 3,888,658
1/1/2022 1,100,000 349,979 750,021 3,138,637
1/1/2023 1,100,000 282,477 817,523 2,321,114
1/1/2024 1,100,000 208,900 891,100 1,430,014
1/1/2025 1,100,000 128,701 971,299 458,716
1/1/2026 500,000 41,284 458,716 0
1/1/2027 - 0 (0) 0

3. General Journal

Date Narration Debit Credit

1/1/2021 Right of Use Asset ###
Lease Obligation 4,988,658

(an asset obtained on Finance Lease)

1/1/2022 Lease Obligation 750,021

Finance Charges 349,979
Bank 1,100,000

(Payment of lease installment)

1/1/2022 Depreciation Expense 997,732

Right of Use Asset 997,732
(Annual Depreciation)

1/1/2027 Lease Obligations (0)

Finance Charges 0
Bank -
(Payment of GRV)
X (1+i)^-n

454545.5 4,170