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How to prepare lease account?
Solution
The solution is explained below −
Using the annuity table
Rate for 4% for 10 years will be 0.130
- Annual depreciation charge = 200000 * 0.130 => 26000
Lease account
| Debit side | Credit side | ||||
|---|---|---|---|---|---|
| Year | Year | ||||
| 1 | To cash To interest | 200000 8000 192000 | 1 | By Depreciation By Balance c/d | 26000 166000 192000 |
| 2 | To balance b/d To interest | 166000 6640 159360 | 2 | To Depreciation To balance c/d | 26000 133360 159360 |
| 3 | To balance b/d To interest | 133360 5334 128026 | 3 | To Depreciation To balance c/d | 26000 102026 128026 |
| 4 | To balance b/d To interest | 102026 4081 97945 | 4 | To Depreciation To balance c/d | 26000 71945 97945 |
| 5 | To balance b/d To interest | 71945 2878 69067 | 5 | To Depreciation To balance c/d | 26000 43067 69067 |
| 6 | To balance b/d | 43067 |
Year 1
- Debit side: Cash – interest => 200000 – (200000*4%) => 200000 – 8000 => 192000
- Credit side: 192000 – Depreciation amount => 192000 – 26000 => 166000
Year 2
- Debit side: balance – interest => 166000 – (166000*4%) => 166000 – 6640 => 159360
- Credit side: 192000 – Depreciation amount => 159360 – 26000 => 133360
Year 3
- Debit side: Cash – interest => 133360 – (133360*4%) => 133360 – 5334 => 128026
- Credit side: 192000 – Depreciation amount => 128026 – 26000 => 102026
Year 4
- Debit side: Cash – interest => 102026 – (102026*4%) => 102026 – 4081 => 97945
- Credit side: 192000 – Depreciation amount => 97945 – 26000 => 71945
Year 5
- Debit side: Cash – interest => 97945 – (97945*4%) => 97945 – 2878 => 69067
- Credit side: 192000 – Depreciation amount => 69067 – 26000 => 43067
Updated on: 29-Sep-2020
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