KBL Ltd. entered into an agreement to lease a vehicle from Morgan Ltd.: Cash price of the vehicle Kshs 20.000 Lease payments: 5 instalments of Kshs 5.142 paid in arrears Required: How much of this finance charge will appear in each year's profit and loss expense in the lessee's books using the actuarial method? (10 Marks)​

Answers

Answer 1

Finance charge is the amount it costs of borrowing money

The finance charge that will appear in each year's profit and loss expense in the lessee's books are;

[tex]\begin{array}{|c|cc|}\mathbf{Year}&&\mathbf{Finance \ Charge \ (Kshs)}\\&&\\First&&1.8\\&&\\Second&&1.499\\&&\\Third&&1.171\\&&\\Fourth&&0.814\\&&\\Fifth&&0.424\end{array}\right][/tex]

The total financial charge = 5 × 5.142 - 20.000 = 5.71

The annual percentage rate, APR, of an instalment payment is given as follows;

[tex]\dfrac{(1 - (1 + r)^{-5}}{r} \times 5.142 = 20.000[/tex]

Solving using a graphing calculator gives;

r = APR ≈ 0.09 = 9%

The calculation for charges each year is as follows:

Payment interest for the first instalment = 20 × 9% = 1.8

The principal of the first payment = 5.142 - 1.8 = 3.342

The loan balance = 20 - 3.342 = 16.658

Payment interest for the second instalment = 16.658 × 9% = 1.49922

Second payment principal = 5.142 - 1.49922 = 3.64278

Loan balance = 16.658 - 3.64278 = 13.01522

Payment interest for the third instalment = 13.01522 × 9% = 1.1713698

Third payment principal = 5.142 - 1.1713698 = 3.9706302

Loan balance = 13.01522 - 3.9706302 = 9.0445898

Interest for the fourth payment = 9.0445898 × 9% = 0.814013082

Fourth payment principal = 5.142 - 0.814013082 ≈ 4.327986918

Loan balance = 9.0445898 - 4.327986918 = 4.716602882

Fifth payment interest = 4.716602882 × 9% = 0.42449425938

Fifth payment principal = 5.142 - 0.42449425938 ≈ 4.718

Therefore, we have;

[tex]\begin{array}{|c|cc|}\mathbf{Year}&&\mathbf{Finance \ Charge \ (Kshs)}\\&&\\First&&1.8\\&&\\Second&&1.499\\&&\\Third&&1.171\\&&\\Fourth&&0.814\\&&\\Fifth&&0.424\end{array}\right][/tex]

Learn more about the actuarial method here:

https://brainly.com/question/15504405


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Step-by-step explanation:

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Answer:

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Answer:

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do you understand it

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Answers

Hi ;-)

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Step-by-step explanation:

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Answers

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Step-by-step explanation:

steps are in picture above.

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If you want to learn more about change of units, you can read:

https://brainly.com/question/9032119

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Answer:

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