- 7 Marks
CR – July 2023 – L3 – Q2c – IFRS 16: Leases
Account for a finance lease from the lessor's perspective under IFRS 16, including initial recognition and subsequent measurement of lease receivable.
Question
c) On 1 January 2021 Partey Leasing PLC (Partey), acquired a large-scale custom-made equipment and leased it to Mane Ltd (Mane) for six years. Mane makes annual payments of GH¢10 million, commencing on 31 December 2021. The equipment has a useful life of seven years. Mane is responsible for insuring and maintaining the equipment, and is required to pay additional GH¢1.5 million at the end of each year provided a defined performance target is met. Mane has guaranteed that the value of the equipment at 31 December 2026 will not be less than GH¢1 million, although Partey anticipates that the open market value at that date will be approximately GH¢2.5 million. The costs incurred by Partey and Mane in arranging the lease amounted to GH¢2.1 million and GH¢1.6 million respectively. The rate of interest implicit in the lease is 9.49% per annum. Mane achieved the defined performance target on 31 December 2021 and made the required payment.
Required: In line with IFRS 16: Leases, explain how Partey would account for the above lease in its financial statements for the year ended 31 December 2021.
(7 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Finance lease, IFRS 16, Initial Recognition, Lease Receivable, Leases, Subsequent Measurement
- Level: Level 3
- Topic: IFRS 16: Leases
- Series: JULY 2023