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How much will Scott record as depreciation expense

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Question - Scott Limited enters into a lease on 1 July 2020 for the use of machinery. Scott incurred direct costs of $1,200 negotiating the lease agreement.

The first lease payment of $11,000 was made in advance. Three further payments of $11,000 are due each 30 June. If Scott exercises a $16,000 purchase option at the expiration of the lease term on 30 June 2024 it will obtain legal ownership of the asset. At the inception of the lease Scott is reasonably certain of exercising the option. The expected life of the asset is 6 years.

The interest rate implicit in the lease is 8%. The present value of the four lease payments of $11,000 is $39,349. The present value of the purchase option is $11,760.

How much will Scott record as depreciation expense for the year ended 30 June 2021 under IFRS 16 Leases?

A. $8,718.

B. $13,077.

C. $12,777.

D. $8,518.

Reference no: EM133060482

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