CMA Intermediate · Financial Accounting · Lease Accounting
Mehta Logistics Ltd has a finance lease liability of ₹4,00,000 at the start of the year. The finance charge is 12% on the outstanding liability, and a lease payment of ₹1,48,000 is made at the year-end. By how much does this payment reduce the lease liability?
The payment reduces the liability by ₹1,00,000. Of the ₹1,48,000 paid, ₹48,000 (12% of ₹4,00,000) is the finance charge for the year, and the balance of ₹1,00,000 repays the outstanding obligation.
- A₹1,48,000
- B₹48,000
- C₹1,96,000
- D₹1,00,000Correct
Explanation
Finance charge = 12% of 4,00,000 = ₹48,000. The payment is apportioned between the finance charge and the reduction of the outstanding liability. So the reduction is 1,48,000 − 48,000 = ₹1,00,000, leaving a closing liability of ₹3,00,000.
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