Question 1

Section B - Case 1: QuantumQ

QuantumQ also leases a specialized testing facility. The lease commenced on 1 January 20X6 for a 5-year term. Annual payments are $120,000, payable in arrears on 31 December each year. The interest rate implicit in the lease is 6%. (The present value of an ordinary annuity of $1 for 5 years at 6% is 4.212). QuantumQ incurred initial direct costs of $5,000.

What is the initial carrying amount of the lease liability on 1 January 20X6?

Accepted Answer

Multiply the annual payment by the annuity factor. Do not include initial direct costs in the lease liability.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Adding the $5,000 initial direct costs to the lease liability.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 6

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