...IFRS requires that a finance lease be capitalised at the lower of:
(a) the fair value of the asset or;
(b) the present value of the minimum lease payments
and should be depreciated over, the lower of:
(c) The useful economic life of the asset or;
(d) The lease term
Now, as I have only ever dealt with leases in the exam hall and in my studies I have a question that the AWeb community may be able to assist with in the real world. My Company has entered a finance lease over a 3 year term, with the lease payments total being £99k. The finance lease is interest free. And the the (c) and (d) are both 3 years.
As such, to my mind, the "present value" part of "present value of minimum lease payments" would drop out as there is no interest rate to calculate the present value, as the interest rate is 0%.
As such, my belief is that we should:
DR Fixed Assets 99k
CR Liabilities 99k
Depreciation should be £33k per year and to be completely correct the liability come year end should be split into current and non-current liabilities.
Could someone please clarify or correct my train of thought please?
Many thanks as always
T