On January 1st, 2014, ABC Inc

question 121

Multiple Choice

On January 1st, 2014, ABC Inc.(the lessor) agrees to lease a piece of specialized piece of machinery to DEF Inc.(the lessee) for 5 years.ABC Inc.is a financial intermediary specializing in leasing arrangements such as the one described below.Details are as follows: Fair value of machinery at inception of the lease: $100,000.Lease term: 5 years (no bargain renewal terms) .
Executory costs of $10,000 are reimbursed by the lessee.
5 Annual lease payments of $23,000 each are made on January 1st of each year starting on January 1st, 2014.
Bargain purchase option at end of lease: $5,000.It is estimated that the equipment will have a fair value of $10,000 at the end of the lease.
Economic life of the asset is 10 years, after which the equipment will be worthless.Straight-line depreciation applies.
ABC's implicit interest rate with respect to this lease is 10%.This is rate is known by DE Inc.
DEF Inc's incremental borrowing rate is 9%.
Assuming that this qualifies as a finance lease, what would be the amount of DEF Inc's annual depreciation as per IFRS (rounded) ?

• A)$10,000
• B)$9,901
• C)$10,076
• D)$5,000

---

Definitions:

Genuine Self-Disclosure

The process of openly and honestly sharing one's true thoughts, feelings, and experiences with others, facilitating deeper connections and understanding.

Repress

To block off memories that may cause pain, embarrassment, or guilt.

Experiences

Life events or activities that a person goes through, contributing to their knowledge, skills, and personal development.

Peak Communications

Peak Communications describes moments of optimal interaction, where communication is exceptionally clear, meaningful, and effective.