CMA Final · Strategic Financial Management · Leasing Decisions
Sundaram Textiles Ltd is offered a machine on finance lease by Kaveri Leasing at a lease rental of Rs 2,40,000 payable annually in arrear for 5 years. The machine costs Rs 9,00,000 and has nil residual value. Which one of the following is the lessor's simple (undiscounted) total gross lease income over the lease term, i.e. total rentals less cost of the asset?
The lessor's undiscounted gross lease income is Rs 3,00,000. Total rentals over five years are Rs 12,00,000, and deducting the Rs 9,00,000 cost of the machine, with no residual value, leaves Rs 3,00,000 as the finance income.
- ARs 3,00,000Correct
- BRs 1,20,000
- CRs 2,10,000
- DRs 12,00,000
Explanation
Total rentals = 2,40,000 x 5 = Rs 12,00,000. Less cost Rs 9,00,000 gives Rs 3,00,000 of gross income. Rs 12,00,000 ignores the cost recovery; Rs 1,20,000 wrongly uses one year's rental halved.
Did you get it right without looking?
One question tells you little. A timed set on Leasing Decisions shows your real accuracy, how long you take and where you lose marks.
More Leasing Decisions questions
- Anand Ltd can buy an asset for Rs 10,00,000 or lease it for 4 years at Rs 3,00,000 annual rental payable at year-end. Tax rate is 30% and th…
- Kaveri Ltd can buy equipment for Rs 5,00,000 or lease it at Rs 1,40,000 per year for 4 years, payable at the end of each year. Tax rate is 3…
- Meera Industries evaluates a finance lease from the lessor's perspective. Equipment cost is Rs 8,00,000, lease term 4 years, annual rentals …
- A lessor buys equipment for Rs 12,00,000 and leases it for 3 years with annual rentals at the end of each year. The lessor requires a 10% re…
- Sundaram Ltd leases equipment for 5 years at an annual lease rental of ₹2,40,000 payable at the end of each year. The tax rate is 25% and th…
- A finance lease requires Meera Ltd to pay ₹1,00,000 at the end of each year for 3 years. The asset's fair value at inception is ₹2,48,690 an…