Answer / barodianbuddy(acca)

Financial lease:-

1. long term lease
2. one lessee usually
3. accounting treatment:- lessee capitalize leased asset as non-current asset. Hence depreciates it.
obligation to pay future rentals but this must be split between current & non current liabilities.

4. Substance over the foam concept (IAS 1 & 8)

Operating lease:- only renting of the asset

1. short term lease
2. Accounting treatment:- Lessor shows it as non current asset and receives rentals from lessee.

Lessee shows any amount accrued but unpaid as payable.

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2. A budgeted profit statement of a company working at 75% capacity is provided to you 2 below, Sales 9,000 units at Rs. 32 Rs. 2,88,000 Less: Direct materials Rs. 54,000 Direct wages 72,000 Production overhead: fixed 42,000 variable 18,000 1,86,000 Gross profit 1,02,000 Less: Administration, selling and distribution costs: fixed 36,000 varying with sales volume 27,000 63,000 Net profit 39,000 You are required to: (a) Calculate the breakeven point in units and in value. (b) It has been estimated that: (i) if the selling price per unit were reduced to Rs. 28, the increased demand would utilise 90% of the company's capacity without any additional advertising expenditure, and (ii) to attract sufficient demand to utilise full capacity would require a 15% reduction in the current selling price and a Rs. 5,000 special advertising campaign. You are required to present a statement showing the effect of the two alternatives compared with the original budget and to advise management which of the three possible plans ought to be adopted, i.e., the original budget plan or (i) above or (ii) above. (c) An independent market research study shows that by spending Rs. 15,000 on a special advertising campaign, the company could operate at full capacity and maintain the selling price at Rs. 32 per unit. You are required to: (i) Advise management whether this proposal should be adopted.

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(A/B)(C-(D/E)+F)

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