ExpertACCA · Question 16 · Accounting for Transactions
SECTION B
CASE SCENARIO: Zephyr Renewables Co (Zephyr) operates wind farms. On 1 January 20X5, Zephyr entered into a 20-year lease for land to build a new wind farm. Annual lease payments are $500,000, payable in arrears on 31 December. Zephyr's incremental borrowing rate is 5% (the PV of an ordinary annuity of $1 for 20 years at 5% is 12.4622). Zephyr incurred initial direct costs of $100,000. On the same date, Zephyr received a $2,000,000 government grant to assist with turbine construction. The turbines have a 10-year useful life. At 31 December 20X5, grid connection issues indicated potential impairment of a separate cash-generating unit (CGU). The CGU's carrying amount is $15,000,000 (including $500,000 goodwill). The CGU's value in use is estimated at $12,000,000 and its fair value less costs of disposal is $13,000,000.
QUESTION: What is the initial value of the lease liability recognized on 1 January 20X5?
SECTION B
CASE SCENARIO: Zephyr Renewables Co (Zephyr) operates wind farms. On 1 January 20X5, Zephyr entered into a 20-year lease for land to build a new wind farm. Annual lease payments are $500,000, payable in arrears on 31 December. Zephyr's incremental borrowing rate is 5% (the PV of an ordinary annuity of $1 for 20 years at 5% is 12.4622). Zephyr incurred initial direct costs of $100,000. On the same date, Zephyr received a $2,000,000 government grant to assist with turbine construction. The turbines have a 10-year useful life. At 31 December 20X5, grid connection issues indicated potential impairment of a separate cash-generating unit (CGU). The CGU's carrying amount is $15,000,000 (including $500,000 goodwill). The CGU's value in use is estimated at $12,000,000 and its fair value less costs of disposal is $13,000,000.
QUESTION: What is the initial value of the lease liability recognized on 1 January 20X5?
Answer options:
$10,000,000
$6,231,100
$6,331,100
$5,919,545
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