Question

Fitbit Ltd has leased a machine on the following terms: Date of entering lease 1 July...

Fitbit Ltd has leased a machine on the following terms:

Date of entering lease 1 July 2019

Duration of lease 5 years

Life of asset 6 years

Unguaranteed residual value $40,000

Lease payments inception (at the start) $60,000

Annual payments (5)    $65,000

Implied rate 11.0 %

Required: Determine the Fair Value (rounded off) of the leased asset.

Business   Accounting   
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Answer #1

Duration: 5 Years residual value:$ 40000

Years

Payments($)

Present Value Factor (PVF) @11%

PV

    0

60000

1

60000

    1

65000

0.90090

58558.56

2

65000

0.81162

52755.46

3

65000

0.73119

47527.44

4

65000

0.65873

42817.51

5

105000 (65000+40000)

0.59345

62312.39

Total of PV :323971.36

Therefore ,     Fair value of asset   =232971.36

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