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Calculate the lease liability at end of each financial year

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MNO Ltd prepares accounts to 31 December each year. On 1 January 2016, the company acquired the right of using the asset by means of a finance lease. Details of lease agreement are as follows:

Cash price of the asset: $27,500

Lease term: 5 years

Payments due annually in advance (i.e. at beginning of year): $6595

Useful life of asset: 8 years

Rate of interest implicit in lease: 10% per annum

MNO will obtain the legal ownership of asset at the end of lease term. The company calculates depreciation (regarding the right of use asset) on the straight line basis.

Required

Problem 1: Calculate the finance charge and depreciation charge for each of the year to 31 December 2016, 2017, 2018

Problem 2: Calculate the lease liability (split of non-current and current liability is required) at the end of each financial year 31 December 2016, 2017 and 2018

Reference no: EM132885154

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