Question 1

Section A

Nomad Retail operates pop-up retail pods. On 1 January 20X6, Nomad entered into a 4-year lease for a prime location pod. Lease payments are $25,000 per year, payable in advance on 1 January each year. Nomad incurred initial direct costs of $1,500. The interest rate implicit in the lease is 5%. (The present value of an ordinary annuity of $1 for 3 years at 5% is 2.723).

What is the initial measurement of the right-of-use (ROU) asset on 1 January 20X6?

Accepted Answer

1. Calculate the initial lease liability (PV of future payments). Remember the first payment is in advance, so only 3 payments are discounted. 2. Add the advance payment to find total PV of all payments. 3. Add initial direct costs to get the ROU asset.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Discounting all 4 payments when the first is paid immediately (in advance).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 6

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