Cases
Practical case
Locatec Équipements (a fictitious company) buys industrial equipment from manufacturers in order to lease it; it is neither a manufacturer nor a dealer. On 1 January 20X1, it enters into two leases: lease A covers a packaging line leased to Bénard Emballages (a fictitious company) and lease B a mobile crane leased to Chantiers Morel (a fictitious company). For each lease, the inception date and the commencement date coincide and lease payments are received once a year, on 31 December, in arrears. You are preparing the closing at 31 December 20X1 for the lessor.
Your assignment
Using the documents, classify each lease, measure the net investment in the finance lease and its finance income for 20X1, calculate the operating lease income for 20X1 and record the entries for the year. One document is not useful.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
6 documents: open each one to read it.
Document 1Contract
Lease A (packaging line): inception and commencement on 1 January 20X1; term of 5 years, non-cancellable; 5 annual lease payments of 115,220 payable on 31 December from 20X1 to 20X5; no transfer of ownership, no purchase option, no residual value guarantee; the line returns to Locatec at the end of the lease.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Inception and commencement date of lease A | January 1 20X1 | |
| Term of lease A | 5 years | |
| Annual lease payment of lease A | €115,220.00 | |
| Fair value of the line | €507,000.00 | |
| Carrying amount of the line in the register | €507,000.00 | |
| Economic life of the line | 6 years | |
| Unguaranteed residual value of the line | €52,000.00 | |
| Initial direct costs of lease A | €2,500.00 | |
| Interest rate implicit in lease A | 7% | |
| Inception and commencement date of lease B | January 1 20X1 | |
| Term of lease B | 4 years | |
| Lease B payment for 20X1 | €30,000.00 | |
| Lease B payment for 20X2 | €36,000.00 | |
| Lease B payment for 20X3 | €36,000.00 | |
| Lease B payment for 20X4 | €42,000.00 | |
| Fair value of the crane | €400,000.00 | |
| Economic life of the crane | 15 years | |
| Interest rate implicit in lease B | 5% | |
| Internal term benchmark | 75% | |
| Internal present value benchmark | 90% | |
| List price of the new generation | €560,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Lease A
Financing file for lease A
Lease B
Crane data sheet
Locatec's accounting manual
Sales brochure
10 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
How are leases A and B classified by the lessor?
Task 2Calculation
Calculate the present value of the lease payments of each lease and compare it with fair value.
Part 1 · Calculation
Calculate the present value of the lease payments of each lease and compare it with fair value.
Result: Present value of the lease B payments compared with fair value
Task 3Calculation
Calculate the net investment in lease A at 1 January 20X1.
Part 1 · Calculation
Calculate the net investment in lease A at 1 January 20X1.
Result: Net investment in lease A at 1 January 20X1
Task 4Journal entries
Which entry do you record at 1 January 20X1 for lease A?
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Task 5Calculation
Calculate the finance income for 20X1 and the net investment in lease A at 31 December 20X1.
Part 1 · Calculation
Calculate the finance income for 20X1 and the net investment in lease A at 31 December 20X1.
Result: Net investment in lease A at 31 December 20X1
Task 6Journal entries
Which entries do you record at 31 December 20X1 for lease A?
Part 1 · Journal entry · Journal entries
Entry 1 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 2
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 7Calculation
Calculate the lease income for 20X1 on lease B.
Part 1 · Calculation
Calculate the lease income for 20X1 on lease B.
Result: Lease income recognised not yet received in 20X1
Task 8Journal entries
Which entry do you record at 31 December 20X1 for lease B?
Part 1 · Journal entry · Journal entries
Entry 1 of 1
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Task 9Effects on the financial statements
What is the impact of the two leases on the 20X1 financial statements?
Part 1 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
Part 2 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 10Conclusion
Write the conclusion.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 13).
Document this file
These working papers use the data and results of this case.
Normative references