Explain the reasons for the replacement of the leases accounting standard IAS17 with IFRS 16 Leases.
(a) Explain the reasons for the replacement of the leases accounting standard IAS17 with IFRS 16 Leases. (Maximum word limit: 300 words) (28 marks)
(b) On 1 January 2023, Thomaz Ltd was incorporated with an issued share capital of £200,000.
During the financial year 2023, the company earns gross revenues of £32,000 and incurs operating expenses before rental and depreciation expenses of £8,270.
The company acquires an equipment that costs £50,040 from 1 January 2023. The equipment has an estimated economic useful life of 5 years with zero residual value.
Required:
Prepare Thomaz Ltd’s statement of comprehensive income for the year ended 31 December 2023 and the statement of financial position as at 31 December 2023 separately for each of the three different scenarios:
(i) If the company purchased the equipment outright, with a cash payment of £50,040 on 1 January 2023. (16 marks)
(ii) If the equipment was leased for one year only, payable at £12,000 on 1 January 2023.
(12 marks)
(iii) If the equipment was leased for five years, payable annually at £12,000 on 1 January every year with the first payment paid on 1 January 2023. (28 marks)
(iv) For (a)(i) to (iii), show the detailed workings on how the net current assets balance is derived. (16 marks)
(Total 100 marks)
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