Question 1 · Section A · Syllabus B62 marks
Leases
On 1 January 20X5 Arden Co leased a machine for five years. It pays $500,000 a year in advance, the first payment on 1 January 20X5. The interest rate implicit in the lease is 7%. Discount factors at 7%: year 1, 0.935; year 2, 0.873; year 3, 0.816; year 4, 0.763; year 5, 0.713.
Arden Co paid initial direct costs of $40,000 and received a cash incentive of $25,000 from the lessor for signing the lease. It must return the machine to its original condition at the end of the lease; the present value of that cost is $61,500, and a provision is recognised.
At what amount is the right-of-use asset measured on 1 January 20X5? (2 marks)