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QUESTION THREE (15 marks) (a) Dwenehoyie Ltd enters into a 4-year lease for a building with...

QUESTION THREE (15 marks)
(a) Dwenehoyie Ltd enters into a 4-year lease for a building with an option to extend for a further 3 years on 1 January, 2011. The lease payments are GHS120,000 per year during the initial term and GHS150,000 per year during the optional period. There is an estimated restoration cost of GHS60,000 and Dwenehoyie Ltd incurred an initial direct cost of GHS40,000.
At the commencement date, the lessee concluded that it is not reasonably certain to exercise the option to extend the lease. The interest rate implicit in the lease is 22% per annum.
Required:
Show how the above transaction will be treated in the financial statements of the lessee for each of the relevant years using the provisions of IFRS 16 Leases.
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Answer #1
PV Calcution Sheet
Year Payment Discount Factor@22% Present Value
0 40000             40,000.00
1 120000 0.819672131             98,360.66
2 120000 0.6718             80,616.00
3 120000 0.5507             66,084.00
4 180000 0.4514             81,252.00
        3,66,312.66
Lease Liability
Year Opening Balance Interest Exp Payment Closing Balance
0                  3,66,312.66 40000                            3,26,312.66
1                  3,26,312.66 71788.78426 120000                            2,78,101.44
2                  2,78,101.44 61182.3168 120000                            2,19,283.76
3                  2,19,283.76 48242.4265 120000                            1,47,526.18
4                  1,47,526.18 32473.76033 180000                                        (0.06)
At 01/01/2011 Financial Statement Shown as Follows
Financial Asset    3,66,312.66
Financial Liabilities    3,26,312.66
31-12-11 Financial Asset    3,66,312.66 Financial Liablity    3,26,312.66
(-)IDC       40,000.00 Lease Liability prinicipal 48211.21574
Balance    3,26,312.66 Balalnce    2,78,101.44
(-)Depriciation 81578.16393
Balance    2,44,734.49
31-12-12 Opening Balance    2,44,734.49 Opening Balance    2,78,101.44
(-) Depriciation 81578.16393 Lease Liability prinicipal 58817.6832
Balance    1,63,156.33 Balalnce 219283.7568
31-12-13 Opening Balance    1,63,156.33 Opening Balance    2,19,283.76
(-) Depriciation 81578.16393 Lease Liability prinicipal 71757.5735
Balance       81,578.16 Balalnce 147526.1833
31-12-14 Opening Balance       81,578.16 Opening Balance    1,47,526.18
(-) Depriciation 81578.16393 Lease Liability prinicipal 147526.2397
Balance                       -   Balalnce                (0.06)
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