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: 2020-09-29T11:12:59+05:30

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