Analti_Calte

HI again VaR_99,
the two methods are actually NOT DIFFERENT. What is different is the presentation in both books. If your numbers were used in the CFA material, you would see:
1. The same beg. lease value (Jan 1): €10,000
2. The same lease payment (Jan 1): 2,000.
The CFA book is not implying that there is zero interest charged in the first year. What is being said on page 81 is that this first payment is not paying off any interest, as interest has not had time to accrue yet! Please go back to pg 81 of the book and see that in the bullet points below the table, column (c) is described as ’Interest portion of January 1 payment’ NOT INTEREST EXPENSE for Year 1.
3. The same balance (on Jan 1): 8,000
4. The same interest (for the year): 800 charged at 10% on the balance above BUT the CFA Curriculum shows that interest accrual in a different table (at the top oof page 82), where you can see it impacting in the income statement in Year 1.
5. End of year balance (Dec 31): 8,800 BUT once again the CFA Curriculum shows only the 8,000 on page 81 (without the interest accrual) leaving you having to guess that there must also be an interest liability sitting on the balance sheet separately from the lease liability. If we combine the two, we get 8,000 + 800 = 8,000.
To reiterate, in the CFA Curriculum example, interest is charged to the income statement on the balance from point 3 (in any given year). That includes the final year, in which the last payment occuring on 1 January pays off the entire liability, so there is no outstanding balance for interest to be charged on. Please see that in the table on page 82 of the Curriculum, interest expense for the final year of the lease is zero, just as in Schweser.
The critical difference is that interest charged (as an expense to the Income Statement) DOES NOT EQUAL accrued interest which is paid off in any single year.
Hope this makes it clear!