Question

The Harris Company is the lessee on a four-year lease with the following payments at the end of each year:

Year 1: $ 16,500

Year 2: $ 21,500

Year 3: $ 26,500

Year 4: $ 31,500

An appropriate discount rate is 7 percentage, yielding a present value of $79,863.

A. If the lease is an operating lease, what will be the initial value of the right-of-use asset?

B. If the lease is an operating lease, what will be the initial value of the lease liability?

C. If the lease is an operating lease, what will be the lease expense shown on the income statement at the end of year 1?

D. If the lease is an operating lease, what will be the interest expense shown on the income statement at the end of year 1?

E. If the lease is an operating lease, what will be the amortization expense shown on the income statement at the end of year 1?

F.  If the lease is a finance lease, what will be the initial value of the right-of-use asset?

G. If the lease is a finance lease, what will be the initial value of the lease liability?

H. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1?

I. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1?

Answer 1

A.	The Initial Value of right-of-use asset will be $79863
B.	The initial value of lease liability will be $79863
C.	Lease Expenses shown on the income statement will be nil,as Present value of Lease exp is reconised as an asset, depreciation will be charged ..Depreciatin(Lease Exp) will be $15421
D.	Interest exp will be $1079
E.	Amortization exp will be $15421
F.	The Initial Value of right-of-use asset will be $79863
G.	The initial value of lease liability will be $79863
H.	Lease Expenses shown on the income statement will be nil,as Present value of Lease exp is reconised as an asset, depreciation will be charged ..Depreciatin(Lease Exp) will be $15421
I.	Interest exp will be $1079
NOTE;	The Answer in both Finance & Operating lease is same, because as per IFRS 16 for accounting purpose there is no difference between Finance & Operating lease from the lessee prospective