Chukwudiebube Limited purchased machinery on 1 January, 2019 from Ekenedilichukwu Limited on hire purchase. Chukwudiebube Limited paid a deposit of ₦90,000 and four yearly instalments. The lease payment is ₦80,004 and is paid in arrears every year. Each annual instalment is payable at the end of December every year. The lessee’s incremental borrowing rate is 10%.
The accounting years of Chukwudiebube Limited and Ekenedilichukwu Limited end on 31 December. The depreciation rate for machinery is 20% per annum using straight line method. Chukwudiebube Limited paid the entire sums owing Ekenedilichukwu Limited on the due dates.
Assume that you are the hire purchase buyer (lessee) and are preparing the hire purchase accounts from that perspective. You are required to generate the IFRS 16 amortisation schedule showing the:
i. Initial lease liability as the present value of the total outstanding lease payments at the commencement date.
ii. Initial right of use asset as the lease liability at commencement (after making the necessary adjustments).
iii.Amortisation of the lease liability over the lease term to reflect the hire purchase payments and interest on the liability using the incremental borrowing rate.
iv. Depreciation of the right of use asset over the lower of the estimated useful life of the asset or hire purchase duration.
Suggested answers to practice activity 17.2
Comments