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SPRING 2014 FINANCIAL ACCOUNTING II (MGT401) ASSIGNMENT 02 DUE DATE: 04 Aug, 2014 MARKS: 10

SEMESTER SPRING 2014
FINANCIAL ACCOUNTING II (MGT401)
ASSIGNMENT NO. 02
DUE DATE: 25TH
JULY, 2014
MARKS: 10
ASSIGNMENT: 2
Learning Objective
This activity aims to enable the students to understand that how to prepare the
amortization schedule and how to record the journal entries regarding leasing assets.
Case

RS Company has entered into a contract to obtain the machinery on lease from Soneri
leasing Company on 1st
July 2009.
Fair value of the asset is Rs. 950,000;
Lease rentals are 5 annual installments of Rs. 219,450 starting from 30th
June
2010.
The implicit interest rate is approximately 5% per annum in this lease contract.
Depreciation is charged on written down method at 20%.
Required:
1) Show how this lease would be presented in the accounts of the lessee (lease
amortization schedule) for entire lease term.
2) Show journal entries that are to be recorded in the books of lessee for the financial
year 2009 to 2010.
3) Also mention the charges that have to be disclosed in income statement for the
year ended June 30th
2010 and for the year ended June 30th
2011, in the books of
lessee.
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Lease rental

Fin charge

Principal

Principal outstanding

 

 

 

 

950000

1

219450

47500

171950

778050

2

219450

38903

180547

597503

3

219450

29875

189575

407928

4

219450

20396

199054

208874

5

219450

10443

209008

 

 

 

 

 

 

Fair value 950000

No of installments 5

Installments amount 219450

IRR 5% and deprecation 20% WDM

                    

Dr. Asset subject to finance lease a/c 950000

Cr. Liability subject to finance lease a/c 950000

Recording of asset at the inception of lease 1st July 2009

Dr. Liability subject to finance lease a/c 171959

Cr. Current Maturity of lease a/c 171950

Transfer to current maturity at the inception of lease July 1st 2009

Dr. Current maturity of lease a/c 171950

Dr. Financial charges a/c 47500

Cr. Bank a/c 219450

Payment of first rental June 2010

Dr. Liability subject to finance lease a/c 180547

Cr. Current maturity of lease a/c 180547

Transfer to current maturity at the inception of lease June 2010

Dr. Deprecation   a/c 190000

Cr. Accumulated Dep a/c 190000

Depreciation June 2010

Information to be disclosed

Profit and loss a/c for the year June 2010

Depreciation 190000

Lease finance charges  47500

3) Also mention the charges that have to be disclosed in income statement

not profit and loss account.

Unable to solve the assignment!

kuch samj ni aii is assignment ki to demgh kharb kar dia is nyyyyyyyyyyyyyyyy

complete solution of assignment # 2 MGT401

Lease Amortization Schedule

Lease Rental Interest Principal Outstanding
Principal
950,000
219,450 47,505 171,945 778055
219,450 38,908 180,542 597,513
219,450 29,881 189,569 407,944
219,450 20,402 199,048 209,000
219,450 10,450 209,000 -

• 219450 x (1+0.05)^ -1 = 209000
• 219450 x (1+0.05)^ -2 = 199048
• 219450 x (1+0.05)^ -3 = 189569
• 219450 x (1+0.05)^ -4 = 180542
• 219450 x (1+0.05)^ -5 = 171945


Journal Entries
Date Details Debit
(Rs.) Credit
(Rs.)
1st July
2009
Asset subject to finance lease a/c
Liability subject to finance lease a/c

(Recording of asset)
950,000
950,000
1st July
2009
Liability subject to finance lease a/c
Current maturity of lease a/c

( Transfer to current maturity )
171,945
171,945
30th June
2010 Current Maturity of lease a/c
Financial Charges a/c
Bank a/c

( Payment of first rental )
171,945
47,505

219,450
30th
June
2010
Liability subject to finance lease a/c
Current maturity of lease a/c

( Transfer to current maturity )
180,542
180,542
30th
June
2010
Depreciation Expense a/c
Accumulated depreciation a/c

( Recording of depreciation )
190,000
190,000

Supported Calculations:

Depreciation rate = 20%
Method = WDV
Fair value = Rs. 950,000
Depreciation = 950,000 x 20 % = Rs. 190,000



Charges transferred to Profit and loss a/c in 2010:
• Depreciation of Rs.190,000
• Financial charges of Rs.47,505

Charges transferred to Profit and loss a/c in 2011:
• Depreciation of Rs.190,000
• Financial charges of Rs.38,908
Revaluation method to calculate depreciation
Under this method the fixed assets are valued at the end of each accounting period. The difference between the value at the beginning of the period and the value at the end of the period represents the depreciation value which is charged against the profit and loss account. This method is used in case of assets like loose tools, packages, Farmers’ livestock etc.
Formula for Calculating:
Depreciation = Value of asset at the end – Value of asset at the beginning + Any new purchases
Explain renewal method to calculate depreciation.
In this method the full cost of the asset is charged as depreciation during the period in which the asset is renewed. No depreciation is charged in between the period. This method can be used if the asset is of small value and is renewed frequently

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