Question

Testbank Multiple Choice Question 60 x Your answer is incorrect. Try again. Crane Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Crane. The six-year lease requires payment of $181000 at the beginning of each year, including $26100 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Crane should record the leased asset at $903681 $773371. $867133. $742093

Answer 1

Answer

Correct asnwer is $773,371

As per the IFRS 16, if the maintenance, insurance and taxes component can be separated from the total lease payaments they are not capitalised and are expensed each year.

Also as per IFRS if the implicit rate of lessor is known to lesse, lease liability should be recorded at such implicit rate and corresponding right to use asset is also recorded at such implicit rate.

So amount to be capitalised as right to use asset=$181,000-$26,100=$154,900 @ present value annuity of 1 @8%

Amount. to be debit as right to use asset

=$154,900*4.99271

Right to use asset=$773,371