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Madini Ltd. has entered into an agreement with a finance company to lease a machine for a four-year period. Under the terms of the agreement,...

      

Madini Ltd. has entered into an agreement with a finance company to lease a machine for a four-year period. Under the terms of the agreement, the machine is to be made available, to Madini Ltd. on 1 January 2012'; when an immediate payment of Sh.2,550,000 will be made, followed by seven semi-annual payments of an equal amount. The fair market price of the machine on 1 January 2012 is expected to be Sh. 16,320,000. The estimated useful life of this type of machine is 4 years. The implicit rate of interest in the transaction is 6.94% payable annually. The corporate tax rate is 30%. Madini Ltd.'s policy is to depreciate machines of this type over four-year period using the straight line basis.
Required:
Show how the above transaction would be reflected in the income statement of Madini Ltd for each of the four years ending 31 December 2012,2013,2014 and 2015.
(Assume that the lease is to be capitalised: Use the actuarial method to allocate the interest
charge)

  

Answers


Wilfred
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Wilfykil answered the question on February 8, 2019 at 08:28


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