CERTYNEX IFRS ACADEMY

Ravenne leases a machine for 5 years; the 5 annual payments of 20,000 are payable in advance, the first being paid at the commencement date. The interest rate implicit in the lease, which can be readily determined, is 5%. The accountant measures the lease liability by discounting the 5 payments, including the one made at the commencement date. What is the error?

The incremental borrowing rate should have been used rather than the implicit rate.

The 5 payments should have been taken without discounting, that is 100,000.

The payment made at the commencement date should not have been included: only the 4 remaining payments are discounted.

There is no error: all the payments of the contract are included in the lease liability.