- 10 Marks
FR – Nov 2014 – L2 – Q4b-Q4c – Leases (IFRS 16)
Recommend lease type for Island Plc, illustrate lease differences, and calculate lease rental and finance charge.
Question
Island Plc, an international airline operating in Nigeria, intends to lease a Boeing 747 from KLM Leasing Ltd. The lease terms include:
- Lease period: 5 years
- Quarterly rental: N150 million
- Aircraft cost: N500 million
- Useful life of aircraft: 20 years
- Scrap value: Nil
- Maintenance by KLM Leasing Ltd
Required:
b. i. Recommend the most appropriate lease arrangement for Island Plc, giving reasons. (2 Marks)
ii. Describe the differences between the recommended lease type and another lease type per IAS 17. (5 Marks)
c. i. Calculate the total lease rental over the lease period. (1 Mark)
ii. Determine the finance charge for the lease period. (2 Marks)
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