ACCA FR · Chapter 6 · Question 2 of 9
On 1 January Wren Co leased a machine for 5 years. Payments of $50,000 are made annually in arrears. The interest rate implicit in the lease is 8%, giving a 5-year annuity factor of 3.9927. Wren Co paid initial direct costs of $5,000. At what amount should the right-of-use asset first be recognised? (Round to the nearest dollar.)
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $204,635
Explanation
Lease liability = PV of payments = $50,000 x 3.9927 = $199,635 (to the nearest dollar). The right-of-use asset is the lease liability plus initial direct costs (and any payments made at or before commencement): $199,635 + $5,000 = $204,635.
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