Cévenole leases a mobile crane for 4 years, for annual lease payments of 60,000 made at the end of each year. It guarantees the lessor that the crane will be worth at least 40,000 at the end of the lease and will pay the difference if its value is lower. At the commencement date, Cévenole expects the crane to be worth 25,000 at that date. As the implicit rate cannot be readily determined, its incremental borrowing rate of 5 % is used. Compute the lease liability at the commencement date, rounded to the nearest euro.
- Annual lease payment made at the end of the year
- 60,000
- Lease term
- 4
- Incremental borrowing rate
- 5 %
- Guaranteed residual value
- 40,000
- Expected value of the crane at the end of the lease
- 25,000