The following information relates to questions
Adam Limited and Davies Limited enter into a finance lease agreement with the following terms:

? lease term is 3 years
? estimated economic life of the leased asset is 6 years
? 3 × annual rental payments of £23 000 each payment is one year in arrears
? residual value at the end of the lease term is not guaranteed by the lessee
? interest rate implicit in the lease is 7%.

-The period over which the asset should be depreciated by the lessee is:
A) 3 years;
B) 6 years;
C) the rate as determined by the tax authorities;
D) cannot be determined from the information provided.

Question

The following information relates to questions 
Adam Limited and Davies Limited enter into a finance lease agreement with the following terms:

?	lease term is 3 years
?	estimated economic life of the leased asset is 6 years
?	3 × annual rental payments of £23 000 each payment is one year in arrears
?	residual value at the end of the lease term is not guaranteed by the lessee
?	interest rate implicit in the lease is 7%.

-The period over which the asset should be depreciated by the lessee is:
A) 3 years;
B) 6 years;
C) the rate as determined by the tax authorities;
D) cannot be determined from the information provided.

Quizplus · Accepted Answer

The period over which the asset should be depreciated by the lessee depends on several factors such as the useful life of the asset and the terms of the lease agreement. The information provided in the question is not sufficient to determine the proper depreciation period. Therefore, option D is the best choice.

The Following Information Relates to Questions