Nama : Syalfan Dzaki G.

NIM : 041911333159

Kelas : O / AKM II

E 21.4

a) For purposes of calculating the initial lease liability, the present value of the lease payments
will only include the amount of a residual value guarantee probable to be owed at the end of
the lease term. Thus, the initial lease liability and right-of-use asset to be recorded on the
books of Stora Enso is calculated as follows:

71,830 Annual rental payment

7,24689 (x) PV of annuity-due of 1 for n=10, i=8%
520,544 PV of periodic rental payments

3,000 Amount probable to be owed under residual value guarantee (10.000-

7.000)
0,46319 (x) PV of 1 for n=10, i=8%
1,390 PV of amount probable to be owed on residual value guarantee

520,544 PV of periodic rental payments

1,390 (+) PV of the residual value
521,934 Lease liability

12/31/21
Right-of-Use Asset 521,934
Lease Liability 521,934
Lease Liability 71,830
Cash 71,830
 12/31/2022
Depreciation Expense 52,193
Right-of-Use Asset 52,193
Lease Liability 38,687
Interest Expense (Schedule 1) 33,143
Cash 71,830

11/31/2023
Depreciation Expense 52,193
Right-of-Use Asset 52,193
Lease Liability 38,687
Interest Expense (Schedule 1) 33,143
Cash 71,830

Schedule 1 Stora Enso

Lease Amortization Schedule (partial)
(Lessee)

Date Annual Lease Interest (8%) on Reduction of Lease Liability

Payment Liability Lease
12/31/2021 521,934
12/31/2021 71,830 0 71,830 450,104
12/31/2022 71,830 36,008 35,822 414,282
12/31/2023 71,830 33,143 38,687 375,595

b) Initial direct costs and lease incentives do not affect the initial measurement of the lease
liability. Instead, they only affect the measurement of the right-of-use asset. Initial direct
costs incurred by the lessee increase the right-of-use asset, whereas a lease incentive
decreases the value of the right-of-use asset. The calculation of the right-of-use asset is as
follows:
 521,934 Lease liability
1,000 (-) Lease incentive
5,000 (+) Legal fees
525,934 Right-of-use asset

c) The annual insurance payments of €5,000 are considered part of the annual payments to the
lessor similar to the rental payments, as they do not transfer a separate good or service to the
lessee, but rather are part of the payment to use the leased asset and are attributable to the
lease component. Therefore, the present value of the €5,000 annual payments should be
included in the initial measurement of the lease liability, and thus the right-of-use asset as
well. The calculation is as follows:

71,830 Annual rental payment

7,24689 (x) PV of annuity-due of 1 for n=10, i=8%
520,544 PV of periodic rental payments

5,000 Annual insurance payment

7,24689 (x) PV of annuity-due of 1 for n=10, i=8%
36,234 PV of periodic insurance payments

3,000 Amount probable to be owed under residual value guarantee

(10,000-7,000)
0,46319 (x) PV of 1 for n=10, i=8%
1,390 PV of amount probable to be owed of residual value guarantee

520,544 PV of periodic rental payments

36,234 (+) PV of periodic insurance payments
1,390 (+) PV of residual value
558,168 Lease liability
d) Because Stora Enso expected the residual value of the asset at the end of the lease to be
€7,000, it expected to owe Sheffield an additional €3,000 in addition to returning the asset
under the residual value guarantee. Thus, Stora Enso has a lease liability of €3,000 remaining
on the books. However, the value of the asset covers the entire guarantee, and thus no
additional cash payment is required by Stora Enso. As a result, they will book a gain, as
shown below:

Lease Liability 3,000

Gain on Lease 3,000

E21.16
a) The calculation for the present value of lease payments is as follows:

4,892 Annual rental payment

3.72325 (x) PV of annuity-due of 1 for n=4, i=5%
18,214 PV of periodic rental payments

The lessee applies the finance lease method, based on the following amortization schedule
DONAHUE SA
Lease Amortization Schedule
Annuity-Due Basis

Date Annual Lease Interest (5%) on Reduction of Lease Liability

Payment Liability Lease Liability
1/1/2022 18,214
1/1/2022 4,892 0 4,892 13,322
1/1/2023 4,892 666 4,226 9,096
1/1/2024 4,892 455 4,437 4,659
1/1/2025 4,892 233 4,659 0

b) 1/1/2022
Right-of-Use Asset 18,214
 Lease Liability 18,214
Lease Liability 4,892
Cash 4,892

12/31/2022
Interest Expense 666
Lease Liability 666
Depreciation Expense (18.214 / 4) 4,554
Right-of-Use Asset 4,554

12/31/2023
Interest Expense 455
Lease Liability 455
Deprection Expense (18.214 / 4) 4,554
Right-of-Use Asset 4,554

1/1/2023
Lease Liability 4,892
Cash 4,892

c) Initial direct costs do not affect the value of the lease liability, but they do change the value
of the right-of-use asset. The initial measurement of the right-of-use asset will be increased
for any initial direct costs. As a result, the calculation of the right-of-use asset is as follows:

18,214 Initial measurement of lease liability (calculated in part a)

750 (+) Initial direct costs
18,964 Right-of-Use asset

DONAHUE SA
Lease Amortization Schedule
 Annuity-Due Basis

Date Annual Lease Interest (5%) on Reduction of Lease Liability

Payment Liability Lease Liability
1/1/2022 18,214
1/1/2022 4,892 0 4,892 13,322
1/1/2023 4,892 666 4,226 9,096
1/1/2024 4,892 455 4,437 4,659
1/1/2025 4,892 233 4,659 0

1/1/2022
Right-of-Use 18,964
Cash 750
Lease Liability 18,214
Lease Liability 4,892
Cash 4,892

12/31/2022
Interest Expense 666
Lease Liability 666
Depreciation Expense (18.964 / 4) 4,741
Right-of-Use Asset 4,741

d) With fully guaranteed residual value by Donahue the initial measurement of the right-of-use
asset and lease liability would not change, as the company expects the residual value to be
equal to the guaranteed residual value. Therefore, no amount is probable to be owed under
the guarantee, and no amount needs to be accounted for in the initial lease liability by
Donahue.

e) A bargain renewal option would cause Donahue to take the additional year (and payment)
into account when determining how to classify the lease and the initial measurement of the
lease liability and right-of-use asset. However, for purposes of the classification, Donahue
need not know the value of the bargain renewal option, as the additional year of lease term
 causes the lease term to be 5 years, which is greater than 75% of the useful life of the asset.
(5 ÷ 6 = 83%). Thus, Donahue classifies the lease as a finance lease and accounts for it in the
same way as described in part (b). The only difference is the present value of the bargain
renewal option must be included in the initial measurement of the lease liability, as it is
probable that it will be paid.

E21.17

a) Fair value of leased asset to lessor 25.000

Less: Present value of unguaranteed residual value 8,250 x 0,82270
(Present value of 1 at 5% for 4 periods) 6,787
Amount to be recovered through lease payments 18,213

Four periodic lease payments (18,213 / 3,72325) 4,892

Present value of annuity-due of 1 for 4 periods at 5% (3,72325)

b) 1/1/2022
Cash 4,892
Unearned Lease Revenue 4,892

12/31/2022
Unearned Lease Revenue 4,892
Lease Revenue 4,892
Depreciation Expense 3,333
Accumulated Depreciaton – Equipment (20,000 / 6) 3,333

c) Even though the expected residual value declined, the fact that Donahue has guaranteed a
residual value of €8,250 leads Rauch to calculate rental payments based on the same amount
as if a residual value of $8,250 were unguaranteed. That is, Rauch will look to recover
through the lease payments whatever portion of the fair value of the asset it does not recover
 through the receipt of a residual value at the end of the lease term. Thus, all else being equal,
Rauch would demand the same amount in lease payments from Donahue as it would under
the original facts of the question.

d) A fully guaranteed residual value by Donahue would cause the lease to be classified as a
sales-type lease by Rauch. As a result, Rauch would recognize sales revenue and a lease
receivable at the commencement of the lease for the entire fair value of the asset, as well as
derecognize the asset and recognize cost of goods sold. Rauch would then recognize lease
revenue for any interest accrued on the lease receivable over the lease term, and amortize the
lease receivable over the term as well. Upon receipt of the asset again at the end of the lease
term, Rauch would derecognize the remaining lease receivable, and record the asset as
inventory at its fair value, along with any cash payment required to be collected if the fair
value is less than the guaranteed residual value.

e) A bargain renewal option also would cause the lease to be classified as a sales-type lease by
Rauch, as it would cause the lease term to be 83% (5 ÷ 6 = 83%) of the economic life of the
asset. Thus, the accounting for the lease by Rauch would be essentially the same as explained
in part (d). However, as sales revenue, Rauch would only recognize the present value of the
lease payments and bargain renewal option. That is, it would need to find the amount of
residual value expected at the end of the lease term, and reduce both sales revenue and cost
of goods sold by the present value of the residual value. In addition, at the end of the lease
term, Rauch could potentially recognize a gain or loss on the lease, as the value of the
residual value it receives could potentially be higher or lower than the lease receivable it
needs to remove upon the return of the asset.

P21.6

a) This is a sales-type lease for Glaus (lessor), since the lease term is greater than 75% of the
economic life of the leased asset. The lease term is 78% (7 ÷ 9) of the asset’s economic life.
 In addition, the present value of the lease payments is greater than 90% of the asset’s fair
value, as shown in part (c).

b) Calculation of annual rental payment

664,466 Present value of 1 at 5% for 7 periods
6.07569 (÷) Present value of an annuity-due at 5% for 7 periods
109,365

c) Computation of lease liability, or present value of lease payments

PV of annual payments 109,365
5.91732 Present value of an annuity-due at 6% for 7 periods
647,146
Because the guaranteed residual value is equal to the expected residual value, the lessee
would not include any amount of the guaranteed residual value in its calculation of the initial
lease liability. Note that Jensen used its incremental borrowing rate because Jensen does not
know the implicit rate.

d) 1/1/2022
Right-of-Use Asset 647,146
Lease Liability 647,146
Lease Liability 109,365
Cash 109,365

12/31/2022
Depreciation Expense 92,449
Right-of-Use Asset 92,449
Interest Expense 32,267
Lease Liability 32,267
1/1/2023
Lease Liability 109,365
Cash 109,365
 12/31/2023
Depreciation Expense 92,450
Right-of-Use Asset 92,450
Interest Expense 27,641
Lease Liability 27,641

e) 1/1/2022
Lease Receaveable 700,000
Sales Revenue 700,000
Cost of Goods Sold 525,000
Inventory 525,000
Cash 109,365
Lease Receivable 109,365

12/31/2022
Lease Receivable 29,532
Interest Revenue 29,532

1/1/2023
Cash 109,365
Lease Receivable 109,365

12/31/2023
Lease Receivable 25,540
Interest Revenue 25,540

f) PV of annual payments 647,146

PV of amount probable to be owed 6,651
Lease Liability 653,797
 In this case, the guaranteed residual value is greater than the expected residual value.
Therefore, the lessee must include the present value of the amount probable to be owed under
the guaranteed residual value in its calculation of the initial lease liability.

Marks and Spencer

a) Marks and Spencer uses both finance leases and operating leases.
b) Marks and Spencer reported finance leases of £48.6 million in total, and £0.4 million within
one year.
c) Marks and Spencer disclosed future minimum rentals (in millions) under non-cancelable
operating lease agreeements as of 30 March 2019, of:
Not later than one year 311.3
Later than one year and not later than five years 1108.4
Later than five years and not later than ten years 1099.4
Later than ten years and not later than 15 years 542.8
Later than 15 years and not later than 20 years 351.9
Later than 20 years and not later than 25 years 225.8
Later than 25 years 970.3
Total 4,609.9

British Airways and Air France

a) Air France uses both finance leases and operating leases on its aircraft, buildings, and other
property, plant, and equipment.
b) Some of Air France’s leases are longer than five years. Some characteristics of the leases are
the assets held under a finance lease are recognized as assets at the lower of the following
two values: the present value of the minimum lease payments under the lease arrangement or
their fair value determined at inception of the lease. The corresponding obligation to the
lessor is accounted for as long-term debt. These assets are depreciated over the shorter of the
useful life of the assets and the lease term when there is no reasonable certainty that the
lessee will obtain ownership by the end of the lease term.
c) Future minimum commitments under capital leases are set forth below (in millions):

2018 2017
 One year 583 655
Two years 640 539
Three years 576 548
Four years 573 513
Five years 418 508
Over 5 years 1,259 1,200
Total 4,049 3,963

d) At year-end 2015, the present value of minimum lease payments under capital leases was
3,789 million. Imputed interest deducted from the future minimum annual rental
commitments was 260 million.

e) The details of rental expense (in millions) are set forth below:

2018 2017
1,027 873

f) British Airways uses leases for its aircraft fleet and property and equipment, while Air
France uses leases for its aircraft, buildings, and other property, plant, and equipment. Both
companies have leases that extend beyond five years, while some of British Airways leases
extend up to 130 years. Air France did not give a definite length for the leases that extend
beyond five years. In general, the two companies rely on both finance and operating leases
for its aircrafts and they have lease commitments for more than five years into the future.