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A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000.
The firm has decided to depreciate the lease by the annuity method by charging
5 percent rate of interest per annum. Show the lease account for five years?
The firm has decided to depreciate the lease by the annuity method by charging
5 percent rate of interest per annum. Show the lease account for five years?
Most Upvoted Answer
A firm purchases a lease on 1st January 2015 for a period of 5 years f...
Lease Purchase Overview
The firm purchased a lease for Rs.1,00,000 on January 1, 2015, for a duration of 5 years. The annuity method of depreciation is employed, with an interest rate of 5% per annum.
Calculation of Annuity Payment
To determine the annual annuity payment (A), we use the formula for the present value of annuity:
\[
A = P \times \frac{r(1+r)^n}{(1+r)^n - 1}
\]
Where:
- P = Principal (Rs.1,00,000)
- r = Interest rate (5% or 0.05)
- n = Number of years (5)
Calculating A:
\[
A = 1,00,000 \times \frac{0.05(1+0.05)^5}{(1+0.05)^5 - 1} \approx Rs.23,097.25
\]
Lease Account for Five Years
The lease account will include the annual annuity payments and the interest expense.
Conclusion
At the end of the five-year period, the lease is fully depreciated, with an outstanding balance of Rs.1,103.77 remaining. The annuity method effectively spreads the lease cost over its useful life while accounting for interest.
The firm purchased a lease for Rs.1,00,000 on January 1, 2015, for a duration of 5 years. The annuity method of depreciation is employed, with an interest rate of 5% per annum.
Calculation of Annuity Payment
To determine the annual annuity payment (A), we use the formula for the present value of annuity:
\[
A = P \times \frac{r(1+r)^n}{(1+r)^n - 1}
\]
Where:
- P = Principal (Rs.1,00,000)
- r = Interest rate (5% or 0.05)
- n = Number of years (5)
Calculating A:
\[
A = 1,00,000 \times \frac{0.05(1+0.05)^5}{(1+0.05)^5 - 1} \approx Rs.23,097.25
\]
Lease Account for Five Years
The lease account will include the annual annuity payments and the interest expense.
| Year | Opening Balance | Interest (5%) | Payment | Closing Balance |
|---|---|---|---|---|
| 2015 | 1,00,000 | 5,000 | 23,097.25 | 81,902.75 |
| 2016 | 81,902.75 | 4,095.14 | 23,097.25 | 62,900.64 |
| 2017 | 62,900.64 | 3,145.03 | 23,097.25 | 43,948.42 |
| 2018 | 43,948.42 | 2,197.42 | 23,097.25 | 23,048.59 |
| 2019 | 23,048.59 | 1,152.43 | 23,097.25 | 1,103.77 |
Conclusion
At the end of the five-year period, the lease is fully depreciated, with an outstanding balance of Rs.1,103.77 remaining. The annuity method effectively spreads the lease cost over its useful life while accounting for interest.
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A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000. The firm has decided to depreciate the lease by the annuity method by charging 5 percent rate of interest per annum. Show the lease account for five years?
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A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000. The firm has decided to depreciate the lease by the annuity method by charging 5 percent rate of interest per annum. Show the lease account for five years? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000. The firm has decided to depreciate the lease by the annuity method by charging 5 percent rate of interest per annum. Show the lease account for five years? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000. The firm has decided to depreciate the lease by the annuity method by charging 5 percent rate of interest per annum. Show the lease account for five years?.
A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000. The firm has decided to depreciate the lease by the annuity method by charging 5 percent rate of interest per annum. Show the lease account for five years? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000. The firm has decided to depreciate the lease by the annuity method by charging 5 percent rate of interest per annum. Show the lease account for five years? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm purchases a lease on 1st January 2015 for a period of 5 years for Rs.1,00,000. The firm has decided to depreciate the lease by the annuity method by charging 5 percent rate of interest per annum. Show the lease account for five years?.
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