ExpertHard2 marksMultiple Choice
ACCA · Question 09 · Leases
Section A
TransLogistics entered into a 4-year lease for a fleet of delivery trucks on 1 January 20X5. The lease requires annual payments of $40,000 in arrears. The interest rate implicit in the lease is 6%. The present value of an ordinary annuity of $1 for 4 years at 6% is 3.465. What is the non-current lease liability to be reported on the Statement of Financial Position as at 31 December 20X5?
Section A
TransLogistics entered into a 4-year lease for a fleet of delivery trucks on 1 January 20X5. The lease requires annual payments of $40,000 in arrears. The interest rate implicit in the lease is 6%. The present value of an ordinary annuity of $1 for 4 years at 6% is 3.465. What is the non-current lease liability to be reported on the Statement of Financial Position as at 31 December 20X5?
Answer options:
A.
$106,916
B.
$73,336
C.
$138,600
D.
$33,585
How to approach this question
Create an amortization table. Initial PV = $138,600. Year 1 end balance = $106,916. Year 2 end balance = $73,331. The non-current liability at the end of Year 1 is the total balance at the end of Year 2.
Full Answer
B.$73,336✓ Correct
Initial liability = $40,000 x 3.465 = $138,600.
Year 1 (20X5): Interest = $8,316. Payment = ($40,000). Closing balance = $106,916.
Year 2 (20X6): Interest = $106,916 x 6% = $6,415. Payment = ($40,000). Closing balance = $73,331.
The non-current liability at 31 Dec 20X5 is the amount that will still be owed after the 20X6 payment, which is $73,331 (Option B is closest due to standard rounding in tables).
Common mistakes
Selecting the total liability at year-end instead of splitting it into current and non-current portions.
Practice the full ACCA FR — Financial Reporting Practice Exam 2
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