Page 11 - 35. FR APRIL 22 MTP QP ANSWERS

Journal Entry

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ROU Asset A/c Dr. 2,50,745
To Lease Liability A/c 2,50,745

(Being difference in lease liability on account of
modification of lease adjusted through ROU Asset A/c)
Working Notes:
1. Calculation of present value of modified lease liability at the beginning of 7th year
Payment
Year Lease Present value factor @ 7% (B) Present value of lease
(A) payments (A x B = C)

7 1,00,000 0.935 93,500
8 1,00,000 0.873 87,300
9 1,00,000 0.816 81,600

10 1,00,000 0.763 76,300
11 1,00,000 0.713 71,300
12 1,00,000 0.666 66,600

13 1,00,000 0.623 62,300
14 1,00,000 0.582 58,200
PV of the modified lease liability at the beginning of the
7th year 5,97,100

2. Calculation of present value of lease liability at the commencement date
Year Lease Payment (A) Present value factor @ 6% PV of lease payments (A x B
(B) = C)
1 1,00,000 0.943 94,300

2 1,00,000 0.890 89,000
3 1,00,000 0.840 84,000
4 1,00,000 0.792 79,200

5 1,00,000 0.747 74,700
6 1,00,000 0.705 70,500
7 1,00,000 0.665 66,500

8 1,00,000 0.627 62,700
9 1,00,000 0.592 59,200
10 1,00,000 0.558 55,800
Present value of the lease liability at the commencement date 7,35,900

3. Calculation of lease liability immediately before the modification date
Year Opening lease Interest @ 6% Lease payments Closing liability
liability (A) (B) = [A x 6%] (C) (D) = [A+B-C]

1 7,35,900 44,154 1,00,000 6,80,054
2 6,80,054 40,803 1,00,000 6,20,857

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