CMA Intermediate · Financial Accounting · Lease Accounting
Meera Traders takes a machine on finance lease. The fair value of the machine at inception is Rs 2,35,500. The present value of the minimum lease payments from the lessee's standpoint, at the implicit rate, is Rs 2,27,805. At what amount should Meera Traders recognise the asset and liability?
The asset and liability are recorded at Rs 2,27,805, because fair value of Rs 2,35,500 exceeds the present value of the lessee's minimum lease payments, and AS 19 then requires the lower present value to be used.
- ARs 2,35,500
- BRs 2,27,805Correct
- CRs 7,695
- DRs 4,63,305
Explanation
AS 19 requires recognition at fair value, but if fair value exceeds the present value of the lessee's minimum lease payments, the present value is used. Since Rs 2,35,500 exceeds Rs 2,27,805, the lower Rs 2,27,805 is recorded. Choosing fair value ignores this proviso.
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