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Ayan ranch Inc

Accounting

Ayan ranch Inc. wants to acquire a mechanized feed spreader that costs $80,000. The ranch
company intends to operate the equipment for 5 years, at which time it will need to be replaced.
However, it is expected to have a salvage value of $10,000 at the end of the fifth year. The asset
will be depreciated on a straight-line basis ($16,000 per year) and Ayan is in 30 percent tax bracket.
Two means of financing the feed spreader are available. A lease arrangement calls for lease
payments of $19,000 annually, payable in advance. A debt alternative carries a interest cost of 17
percent. Debt payments will be at the start of each of the 5 years using the mortgage type of debt
amortization.
a) Compute present value cash outflows under each financing alternative and advise.
b) Discuss disclosure difference of leases as per IFRS 16 from its predecessor IAS 17.

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