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where did they get the 0.6139? Customer Ltd has entered a lease contract. As...

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Accounting

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where did they get the 0.6139?

Customer Ltd has entered a lease contract. As part of the contract, Customer Ltd has guaranteed Lessor Ltd that Lessor Ltd will be able to realise at least $50 000 from the sale of the leased asset at the end of the lease term, which is 10 years. Customer believes that, given the manner in which the asset is to be used, when it returns the underlying asset to Lessor at the end of the lease term, the asset will have a fair value of $35 000. The interest rate implicit in the lease is 5 per cent. REQUIRED In terms of the residual value guarantee, how much would Customer Ltd include as part of the lease payments and what would be the present value of this amount at the commencement date of the lease? SOLUTION An amount of $15 000 to be paid in 10 years would be included as part of total lease payments. It is the difference between what has been guaranteed ($50 000) and what Customer Ltd believes the lease asset will be able to be sold for at the end of the lease ($35 000). The present value component of this lease payment would be: $15 000 x 0.6139 = $9209

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