Maccloud Winery Finance Case Solution

Should the leased building be accounted for as an asset?

Leased building should be recognized as assets, because is performed for business use for a longer period than one year. At the time of acquisition of lease rights, building should be booked on account named Property, Plants & Equipment ( PP&E ) as shown Figure 1.

|Assets |
| | |
|Property, plants & equipment |
|Dt |Ct |
|$ 32 000,00 | |
|$ 32 000,00 |- |
|- |$ 32 000,00 |
|$ 32 000,00 |$ 32 000,00 |

Figure 1

The book value the building is $ 32,000 MacCloud Winery assumes use of the building for
10 years ( term of the lease ), so by this period will be linearly amortized value of the building ($ 32,000: 10 years = $ 3200) in the form of remission of fixed assets, which then will be transferred to the account of depreciation as shown in Figure 2.

|Remission of fixed assets ( annualy ) |Depreciation ( annualy ) |
| |
| |Dt |Ct |years |
| | | $ 5 000,00 |1) |
| | | $ 5 000,00 |2) |
| | | $ 5 000,00 |3) |
| | | $ 5 000,00 |4) |
| | | $ 5 000,00 |5) |
| | | $ 5 000,00 |6) |
| | | $ 5 000,00 |7) |
| | | $ 5 000,00 |8) |
| | | $ 5 000,00