MGT401 Assignment 1 Spring 2021

MGT401 Assignment 1 Spring 2021

Question No. 1
Marks = 2
A famous news channel suddenly needs a broadcasting equipment to efficiently manage the
broadcasting services of one of its News channel “Network”. For this purpose, it has entered into
a four year lease agreement for the equipment with MSK Leasing Limited. The lease agreement
has duly signed by both organizations on following terms:
1. Annual lease rentals will be Rs.200, 000 for primary period and will be paid in advance.
2. Rentals for optional secondary period of three years will be 80%, 60% and 40% of the
annual rental in the primary period.
3. It is also agreed that these rentals will represent a fair commercial rate.
4. Useful life of machine is estimated to eight years with a cash value of Rs.600, 000.
You are required to identify whether this lease agreement will be a finance lease or an operating


Question No. 2
Marks =8
Agro Limited entered into a four-year lease agreement with Life Leasing (pvt.) Limited on 1st
January, 2017 for oil purify machine with a fair value of Rs.100,000. Annual rental is agreed on
Rs. 28,000 starting from 31st Dec, 2017. Agro Limited is responsible for insurance and
maintenance charges. The rate of interest implicit in the lease is 8% p.a.
You are required to show the allocation of the finance charges and principal amount over the lease
Important Note and instructions
 To open the assignment file, you must have Adobe Acrobat Reader/ PDF Reader installed
on your computer.
 For acquiring the relevant knowledge, do not rely only on handouts but watch the course
video lectures and read additional material available online or in any other mode.


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