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    MGT401 Financial Accounting II Assignment #01 Sheikh Asad Aziz (BC190201606)

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    Shakeel Ahmed
    1. A news channel entered a 4-year lease agreement with MSK Leasing Limited for broadcasting equipment worth Rs. 200,000 annually. The secondary period is 3 years at 80%, 60%, and 40% of the primary rate. 2. Agro Limited entered a 4-year lease with Life Leasing for an oil purifying machine worth Rs. 100,000. The annual rental is Rs. 28,000 with implicit interest of 8% annually. 3. The breakdown shows interest and principal amounts over the 4 installments for Agro Limited's lease, with total interest of Rs. 21,978 and principal of Rs. 90,122.

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    MGT401 Financial Accounting II Assignment #01 Sheikh Asad Aziz (BC190201606)

    Uploaded by

    Shakeel Ahmed
    106 views2 pages
    1. A news channel entered a 4-year lease agreement with MSK Leasing Limited for broadcasting equipment worth Rs. 200,000 annually. The secondary period is 3 years at 80%, 60%, and 40% of the primary rate. 2. Agro Limited entered a 4-year lease with Life Leasing for an oil purifying machine worth Rs. 100,000. The annual rental is Rs. 28,000 with implicit interest of 8% annually. 3. The breakdown shows interest and principal amounts over the 4 installments for Agro Limited's lease, with total interest of Rs. 21,978 and principal of Rs. 90,122.

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    1. A news channel entered a 4-year lease agreement with MSK Leasing Limited for broadcasting equipment worth Rs. 200,000 annually. The secondary period is 3 years at 80%, 60%, and 40% of the primary rate. 2. Agro Limited entered a 4-year lease with Life Leasing for an oil purifying machine worth Rs. 100,000. The annual rental is Rs. 28,000 with implicit interest of 8% annually. 3. The breakdown shows interest and principal amounts over the 4 installments for Agro Limited's lease, with total interest of Rs. 21,978 and principal of Rs. 90,122.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    106 views2 pages

    MGT401 Financial Accounting II Assignment #01 Sheikh Asad Aziz (BC190201606)

    Uploaded by

    Shakeel Ahmed
    1. A news channel entered a 4-year lease agreement with MSK Leasing Limited for broadcasting equipment worth Rs. 200,000 annually. The secondary period is 3 years at 80%, 60%, and 40% of the primary rate. 2. Agro Limited entered a 4-year lease with Life Leasing for an oil purifying machine worth Rs. 100,000. The annual rental is Rs. 28,000 with implicit interest of 8% annually. 3. The breakdown shows interest and principal amounts over the 4 installments for Agro Limited's lease, with total interest of Rs. 21,978 and principal of Rs. 90,122.

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    © All Rights Reserved
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    MGT401

    Financial Accounting II
    Assignment #01
    SHEIKH ASAD AZIZ
    (BC190201606)

    Question No. 1
    Marks = 2
    A famous news channel suddenly needs a broadcasting equipment to efficiently manage the
    broadcasting services of one of its News channel “Network”. For this purpose, it has entered into
    a four year lease agreement for the equipment with MSK Leasing Limited. The lease agreement
    has duly signed by both organizations on following terms:
    1. Annual lease rentals will be Rs.200, 000 for primary period and will be paid in advance.
    2. Rentals for optional secondary period of three years will be 80%, 60% and 40% of the
    annual rental in the primary period.
    3. It is also agreed that these rentals will represent a fair commercial rate.
    4. Useful life of machine is estimated to eight years with a cash value of Rs.600, 000.
    Requirement:
    You are required to identify whether this lease agreement will be a finance lease or an operating
    lease?

    Answer
    It is operating lease because lease term is not for a major part of the asset’s useful life.
    Question No. 2

    Marks =8

    Agro Limited entered into a four-year lease agreement with Life Leasing (pvt.) Limited on 1st
    January, 2017 for oil purify machine with a fair value of Rs.100,000. Annual rental is agreed on
    Rs. 28,000 starting from 31st Dec, 2017. Agro Limited is responsible for insurance and
    maintenance charges. The rate of interest implicit in the lease is 8% p.a.
    Required:
    You are required to show the allocation of the finance charges and principal amount over the
    lease term?

    Answer

    As on 1st jan 2017 fair value = 100,000


    Annual rental installment = Rs. 28,000
    Number of installments = 4 years
    Rate of interest = 8% p.a

    Break up table
    Description Fair value Installments Total
    Interest Fair value
    Rs Rs Rs Rs
    100000

    Less 1st installment 20000 8000 20000 28000


    Outstanding 80000
    Less 2nd installment 21600 6400 21600 28000
    Outstanding 58400
    Less 3rd installment 23328 4672 23328 28000
    Outstanding 35072
    Less 4th installment 25194 2806 25194 28000
    Outstanding 9878

    Total 21,978 90,122 21,978

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