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Hello students, here is a question.
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Failed finance ltd, a leasing company that reports under aspe, is in the process of preparing the financial statement for the year ended on june 30, 2020.
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The following leases were entered into the lease of one.
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So, the following transactions are given for this question.
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So, let us calculate the answer for this.
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So, first we will consider for lease 1.
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Evaluate whether lease 1 satisfy any of the following requirements in order to decide whether it should be treated as an operating lease or a capital lease.
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So, at the conclusion of the lease period, ownership of asset is transferred to the leasing.
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The lease period is equal to the longer of 12 years or 75 % of asset of economic life and 90 % or more the asset fair value is represented by the present value of lease payment.
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So, therefore, the lease period under the 1 is 3 years, which is less than 75 % of asset and 8 years of economic life.
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So, the present value will be fair value, fair value is 200 ,000 into the pv factor that is 0 .6949.
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So, the answer will be 138 ,980.
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This is for lease 1, the present value for lease 1.
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This should be treated as a capital lease since it fulfilled the third requirement.
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So, lease 1 satisfy the third requirement, the capital lease since the present value of a lease payment is 138 ,980.
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So, is at least 90 % of assets.
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So, this will be the 90 % of assets are 200 ,000 is a fair market value.
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This indicates that throughout the duration of a lease term, the lease ffl who is really buy the asset from the lease 1 should thus be treated as a capital lease by ffl.
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This implies a depreciation the item during a useful life and recorded an asset of a balance sheet over the course of lease period...