On 1 January 2012 Dobel Ltd signed a ten-year non-cancellable lease that requires a payment of $100 000 at the end of each year.Ownership of the leased asset remains with the lessor at expiry of the lease.The incremental borrowing rate of Dobel Ltd is 12% while the implicit rate of the lessor known to Dobel Ltd is 10%. The following information is also available:
At what amount should the leased property be recorded in the books of Dobel Ltd?

Question

On 1 January 2012 Dobel Ltd signed a ten-year non-cancellable lease that requires a payment of $100 000 at the end of each year.Ownership of the leased asset remains with the lessor at expiry of the lease.The incremental borrowing rate of Dobel Ltd is 12% while the implicit rate of the lessor known to Dobel Ltd is 10%. The following information is also available:
 At what amount should the leased property be recorded in the books of Dobel Ltd?

Quizplus · Accepted Answer

To determine the recording of the leased property, Dobel Ltd should calculate the present value of the lease payments using the implicit rate of 10%. Using the financial calculator, the present value of an ordinary annuity of $100,000 for 10 years at 10% is $614,460. Therefore, the leased property should be recorded in the books of Dobel Ltd at $614,460.

On 1 January 2012 Dobel Ltd Signed a Ten-Year Non-Cancellable