# IAS 18 Finance leases - Welcome to mike-agatecom

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```					Lease name / identifier etc Finance lease input section Cost of leased asset Lease term (years) Frequency of payments (mths), in this example semi-annually Rental payments per period, in this example the payments are made in advance Number of lease payment periods Expected residual on disposal at the end of the lease term Lessee's interest in residual proceeds (%) This is a finance lease Lessor's interest in residual proceeds Economic life of the asset (years) Lease inception and commencement date Lease termination date Lessee's financial year end Input field Calculated field SOLUTION

Terms 100,000 5 2 12,000 10 10,000 97% 300 8 1-Jan-08 31-Dec-12 31 Dec

1) Calculate the Present value using the IRR of the cash flows and from there the "Lessee's minimum lease payments".
Payment frequency The implicit IRR is: Period end 1 2 3 4 5 6 7 8 9 10 Mth / Yr 30-Jun-08 31-Dec-08 30-Jun-09 31-Dec-09 30-Jun-10 31-Dec-10 30-Jun-11 31-Dec-11 30-Jun-12 31-Dec-12 2 4.3556% Cash Inflow/(outflow) 88,000 = 100,000 less the first rental paid in advance. (12,000) (12,000) The sum of this table is made up of: (12,000) Cost of the asset 100,000 (12,000) Rental payments (120,000) (12,000) Lessors' interest in the residual (300) (12,000) (20,300) Ok (12,000) (12,000) (12,300) includes lessor's interest in the residual

2) Calculate the lease miminum payments, Fair value and the Lessor's residual.
Your minimum lease payments: 1 9 First period Remaining periods Jan-08 Dec-12 12,000 12,000 PV factor 1.0000 7.3163 9 PV (£) 12,000 87,804 99,804 A Dec-12 300 0.6529 196 100,000 87796

Obligation at start of period Lessor's residual Fair value

3) Finance lease obligation, rentals paid and finance charge summary
Finance charge at 4.3556%

Period starting

Obligation at start of period Rental paid

Obligation during period

Full Year

Obligation at end of period

Jan-08 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 insert rows

99,804 91,628 83,096 74,193 64,902 55,206 45,088 34,529 23,510 12,000 Total of rentals paid

(12,000) (12,000) (12,000) (12,000) (12,000) (12,000) (12,000) (12,000) (12,000) (12,000) (120,000) B

87,804 79,628 71,096 62,193 52,902 43,206 33,088 22,529 11,510 0

3,824 3,468 3,097 2,709 2,304 1,882 1,441 981 490

7,292 5,806 4,186 2,422 490

91,628 83,096 74,193 64,902 55,206 45,088 34,529 23,510 12,000 0 A (99,804)

20,196 C

Prepared By: Mike Agate

1:53 AM 11/7/2009

4) Full year finance charge and capital repayment
Year ended Rental Finance charges Capital repayment

31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 31-Dec-12 insert rows B

24,000 24,000 24,000 24,000 24,000 120,000 C

7,292 5,806 4,186 2,422 490 20,196

16,708 18,194 19,814 21,578 23,510 A 99,804

5) Summary including depreciation and NBV
NBV of leased Year FL obligations assets Depn Finance charges Total charges

Start 31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 31-Dec-12 insert rows

99,804 83,096 64,902 45,088 23,510

99,804 81,783 63,763 45,742 27,721 9,700

18,021 18,021 18,021 18,021 18,021 90,104

7,292 5,806 4,186 2,422 490 20,196 5 18,021

25,313 23,827 22,207 20,443 18,511 110,300

Depreciation charge =

99,804

less

9,700

90,104 divided by

6) Final - Obligation under finance leases - Presentation
In this example the balances shown are those for (CY)2007 and (PY)2006.

Minimum lease payments CY 2007 PY 2006

PV of minimum lease payments CY 2007 PY 2006

Amounts payable under finance leases: Within one year in the second to x years inclusive Less: future finance charges Present value of lease obligations Less: Amounts due for settlement within 12 months (shown under current liabilities) Amount due for settlement after 12 months

12,000 490 12,490 (490) 12,000

24,000 13,441 37,441 (2,912) 34,529

12,000 12,000 N/A 12,000 (12,000)

22,529 12,000 34,529 N/A 34,529 (22,529)

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12,000

The fair value of the Group's lease obligations approximate their carrying amount.

Booking accounting entries SCHEDULE Initial recog 31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 31-Dec-12 insert row
Cost Cum Depn Obligation Cash Fin Charge Residual Depn P&L Check

100,000 (18,021) (18,021) (18,021) (18,021) (18,021)

(99,804) 16,708 18,194 19,814 21,578 23,510

(196) (24,000) (24,000) (24,000) (24,000) (24,000) 7,292 5,806 4,186 2,422 490 18,021 18,021 18,021 18,021 18,021

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Prepared By: Mike Agate

1:53 AM 11/7/2009

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