ABC Inc.leased a jet from JKL Inc., a company that leases jet aircraft, on January 1st, Year 1.Terms of the lease are as follows: 6 annual payments of $8,000,000 to be made every January 1st, starting on January 1st, Year 1.
ABC's incremental borrowing rate is 12%.ABC Inc.has not been made aware of JKL's borrowing rate.
Both companies follow IFRS.
The jet has a fair value of $38,000,000 at the start of the lease.JKL estimates that the jet will be worthless at the end of the lease term.
There are no executory costs, however JKL, will incur $2 million in direct costs at the sta of the lease.
ABC Inc.depreciates all assets on a straight line basis.
Both companies have determined that their respective leases qualify as finance leases.
As a result of the information provided above, ABC would show total expenses of which of these following amounts for Year 2?

Question

Quizplus · Accepted Answer

The Answer of ABC Inc.leased a jet from JKL Inc., a company that leases jet aircraft, on January 1st, Year 1.Terms of the lease are as follows: 6 annual payments of $8,000,000 to be made every January 1st, starting on January 1st, Year 1.
ABC's incremental borrowing rate is 12%.ABC Inc.has not been made aware of JKL's borrowing rate.
Both companies follow IFRS.
The jet has a fair value of $38,000,000 at the start of the lease.JKL estimates that the jet will be worthless at the end of the lease term.
There are no executory costs, however JKL, will incur $2 million in direct costs at the sta of the lease.
ABC Inc.depreciates all assets on a straight line basis.
Both companies have determined that their respective leases qualify as finance leases.
As a result of the information provided above, ABC would show total expenses of which of these following amounts for Year 2?

ABC IncLeased a Jet from JKL Inc