Submitted by: Submitted by Ashu143
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Words: 3072
Pages: 13
Category: Business and Industry
Date Submitted: 01/02/2014 02:31 AM
Q1 a) The lease can be characterized as financial lease because it satisfies the most important condition for the this, that the risks and rewards for the lease object will be transferred to the lessee after the expiry of the lease term. The lessee takes care of the maintenance of the object and uses the object for its entire useful life. Therefore, the The lessee, during the lease term, has the right to use the object being lease object, in an unhindered way during the period of the financial lease contract holds valid, to derive benefits from the object, as well as to bear all the risks and costs that could arise from the ownership right, although he/she is not the owner of the object in the formal and legal sense.
b) Total finance charge = (30,000*4) - 95,100
= 24,900
Total cost | EMI | Interest | Principal | Principal outstanding |
95,100 | 30,000 | 9,510 | 20,490 | 74,610 |
74,610 | 30,000 | 7,461 | 22,539 | 52,071 |
52,071 | 30,000 | 5,207 | 24,793 | 27,278 |
27,278 | 30,000 | 2,728 | 27,272 | - |
Depreciation Schedule
Year | Value | Depreciation | Net book value |
1 | 95,100 | 19,020 | 76,080 |
2 | 76,080 | 19,020 | 57,060 |
3 | 57,060 | 19,020 | 38,040 |
4 | 38,040 | 19,020 | 19,020 |
5 | 19,020 | 19,020 | 0 |
The value in the fifth year is 19,020. And after 5 years it becomes zero.
c) In the income statement, depreciation as well as interest expenses will be recorded as follows. Since we don not have tax rate we assume zero tax.
Year | Depreciation | Interest | Tax charges | After - tax expenses |
1 | 19,020 |...