Payment in Arrears and advance

Question 1

What is the double entry for a right to use asset

Answer 1

Dr Right to use asset
Cr lease liability

Question 2

What are the 7 steps to salve payment in arrears

Answer 2

1. Proforma for P/L &SOFP
2. Calculate the PV of the lease payments
3. Calculate initial value of right to use asset
4. Depreciate right of use asset and carrying value of the right to use assets
5. Set up lease table and work through: a) finance charge b) outstanding amount lease liability
6. Split total lease liability into current and non current components
7. Complete extracts of financial statements

Question 3

What is the difference in when you calculate finance costs between payments in advance or arrears

Answer 3

Payment in advance - calculate finance costs before instalment is paid
Payment in arrears - calculate finance costs after payment is made