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Requirement
Take a minute to highlight the key details in the scenario and the
requirement.
They are:
Only once you have extracted this information should you then
attempt the question.
Answer outline
The best way to answer this question is to set up a working in the
form of a table.
Complete the table for the year asked for in the question (year
ended 31 March 2007), and complete one additional year in order
to get the breakdown between the current and non-current finance
lease liability.
The finance charge for the year ended 31 March 2007 is $72,000
and the current and non-current finance liabilities at 31 March
2007 are $228,000 and $378,000 ($606,000 - $228,000)
respectively.
This question from the May 2007 exam presented you with the
scenario where the lease payments were being made in advance.
Had the scenario been given where payments were made in
arrears (that is, at the end of each year) then you should still adopt
the same approach but simply reverse the order of columns 3 and
4 in the table above. This is because the interest would accrue
throughout the year on the capital outstanding at the beginning of
the year and the lease payment would pay off this interest and also
a portion of capital.
In summary, there are two key aspects to understanding IAS 17:
firstly you need to understand the IASB Framework principles
which underpin the required accounting treatment and secondly
you need to adopt a methodical approach to questions and
practice them frequently.