Skip to content

CA Intermediate · Advanced Accounting · AS 19 Leases

Anand Logistics Ltd. acquires a vehicle on a finance lease. The lease requires 3 annual payments of Rs 1,20,000, each paid at the end of the year. The interest rate implicit in the lease is 10% and the fair value of the vehicle, which equals the present value of the minimum lease payments, is Rs 2,98,416. Finance charges are allocated to produce a constant periodic rate on the outstanding liability. Rounded to the nearest rupee, what is the lease liability outstanding immediately after the first payment is made?

The liability after the first payment is Rs 2,08,258. Interest for the year is 10% of Rs 2,98,416, which is Rs 29,842. Of the Rs 1,20,000 paid, Rs 90,158 reduces the principal. Subtracting this from the opening liability leaves Rs 2,08,258.

  1. ARs 1,78,416
  2. BRs 2,08,258Correct
  3. CRs 2,68,574
  4. DRs 3,28,258

Explanation

Finance charge for year 1 = 10% of 2,98,416 = Rs 29,842. The payment of Rs 1,20,000 therefore reduces the principal by 1,20,000 - 29,842 = Rs 90,158. The closing liability is 2,98,416 - 90,158 = Rs 2,08,258. Rs 1,78,416 deducts the full payment and ignores the finance charge accruing on the liability.

Did you get it right without looking?

One question tells you little. A timed set on AS 19 Leases shows your real accuracy, how long you take and where you lose marks.

Practise AS 19 LeasesFree diagnostic mock

More AS 19 Leases questions