The automated truck manufacturer Mirandel leases a truck, held in inventory at a cost of 120,000 and whose normal cash selling price (fair value) is 154,737, under a finance lease. The customer makes 5 annual payments of 36,000, in arrears; Mirandel expects an unguaranteed residual value of 10,000. The market rate, equal to the rate in the lease, is 7 %. Mirandel also paid its salesperson a commission of 2,500 to obtain the lease; this commission is already recognised separately. Round each present value to the euro and record the sale entry at the commencement date.
- Cost of the truck in inventory
- 120,000
- Cash selling price (fair value)
- 154,737
- Annual payment in arrears
- 36,000
- Number of annual payments
- 5
- Unguaranteed residual value
- 10,000
- Market rate of interest
- 7 %
- Commission paid to obtain the lease
- 2,500