Comments

  1. Avatar of nesherina says

    Am looking at the earnings per share for june 12 question 2 part b. The number of shares am sseeing u got 90000 for the shares at start and 108000 for total shares but isnt the trial balance figure is at year end. Isnt the 90000 shuld be the yr end figure???? Please respond

  2. avatar says

    Hi
    Can any one answer why does the PV of least payments which is less than the asset value had not been recognised as the leased asset. (PV of rental paid is 24745). According to the leasing standard asset should be recognised as the lower of fair value or PV of rental payement. Why this question this matter is not been considrered.

    Thanks

    • Avatar of MikeLittle says

      Hi

      I don’t have the question easily available. When you say that the “(PV of rental paid is 24745).” have you taken in ALL the payments to be made over the life of the lease? Including any amount paid as a one-off at the start of the lease?

      Otherwise, you are correct is your observation that the asset should be capitalised at the lower of the present value of the minimum lease payments and the fair value of the leased asset

  3. avatar says

    As usual my question still stands since the premises are considering the books as already adjusted for: Dr Obligations 2,000, Cr Cash 2,000 but not for Dr TNCA 25,000, Cr Obligations 25,000.
    (I am saying this because in answers there is an adjustment for Dr TNCA 25,000, Cr Obligations 25,000 but none for this: Dr Obligations 2,000, Cr Cash 2,000)

    Than what obligation did they debit in premises with 2000 and than with 6000 if they didn’t book yet for the leasing?

    I m thinking that since we had to adjust for TNCA and leasing debt…we should have made the adjustments on cash as well…

    Does it make any sense?

    • Avatar of MikeLittle says

      @gaabita, Hi

      No, the 2,000 IS reflected. It’s in the figure of 8,000 lease payments. Fresco has NOT yet reflected the asset and the obligation. that’s why my first entry in my last post says “Undo that wrong entry” What has happened is that Fresco has ( presumably ) received an invoice but not recorded it. Instead, they have made 2 payments ( 2,000 and 6,000 ) to a leasing company but appear either to be treating it as an operating lease ( showing 8,000 operating lease payments ) or they didn’t know how to deal correctly with a finance lease transaction so simply debited the full 8,000 to a “Lease payments account”

      Now, clearly, that entry is incorrect for a finance lease so …. now read my previous post.

      That’s why we have to create an obligations account and record the finance lease asset ( and of course depreciate that asset as well as calculate the finance lease interest for the year )

      Better? If not, post again!

  4. avatar says

    Maybe I should rephrase the question:
    How is it possible to have the leasing invoice and payments already included in books but no asset purchased in leasing and no leasing debt. :)

    When the payment of the first installment has been recorded (as we were supposed to assume that it happened), which was the balancing account? cash on debit and what on credit?

      • Avatar of MikeLittle says

        @gaabita, Debit Obligations Account ( Finance Lease Creditor Account ). There is no asset included in TNCA because the company has debited the finance lease payments account ( Dr Payments under lease, Credit Cash 8,000 )

        Undo that entry and start again!

        Dr TNCA 25,000, Cr Obligations 25,000

        Dr Obligations 2,000, Cr Cash 2,000

        Pay instalment at end of year Dr Obligations 6,000, Cr Cash 6,000

        But that payment of 6,000 includes interest at 10% calculated on the outstanding balance of 23,000 ie 2,300. So now …..

        Dr Finance lease interest account 2,300, Cr Obligations 2,300

        Now we have a total obligation of 25,000 – 2,000 – 6,000 + 2,300 = 19,300. This needs to be split between Long term debt ( > 12 months hence ) and Current liability ( payable within 12 months )

        In addition, the TNCA which we have now correctly recorded needs to be depreciated for the current year

        Better?

        If not, as usual, post again

  5. Avatar of MikeLittle says

    Hi

    I don’t have the question in front of me but …..

    When cash is received, the double entry ( almost ) always will be to Debit cash – but where’s the credit? Sometimes Steve Scott has a suspense account and the bookkeeper has vredited the proceeds to the Suspense Account. Therefore, what we now need to do is debit the Suspense Account and credit Share Capital Account with the nominal value of the shares issued and credit the Share Premium Account with the premium received on that new issue of shares.

    Same argument goes for the amount paid to the leasing company – we will already have credited the Cash Account, but we have ( from memory ) debited the rental payment to a Lease Rentals Account. So, undo that bad entry and then put through the correct entry which in this case will be Credit Cash and debit the Obligations Under Finance Lease Account.

    Similarly, the invoice from the leasing company – I can’t remember – has it been credited to an Obligations Account? And maybe it has been debited to the Suspense Account. So now we need to credit the Suspense Account and debit the cost element to TNCA

    As I say, I haven’t got the question in front of me but if this is beginning to make sense to you, then I’m sure you can figure out the entries for yourself.

    If not ….. then post again and I’ll get the question :-)

    Hope that helps

    • avatar says

      @MikeLittle,

      - the cash received for the shares issue (+13,5kk) – OK;
      - the invoice received from the leasing company (principal + interest= 8.3kk) and the cash paid to the leasing company (deposit 2kk and principal first rate 6kk), these two leave me with a difference of 0.3kk

      And if let’s assume the 0.3kk are already included in the suspense account and in the trade payable (although the suspense is exactly the amount for the share issue), I still don t get which was the entry already included in books for receiving the leasing invoice. It should have been leasing debt = trade payable, but there were no TNCA or leasing debts in the books, so what went on debit with the trade payables?

    • Avatar of MikeLittle says

      @MikeLittle, The asset cost is 25,000. 2,000 of that was paid straight away and therefore is not included in the finance lease interest calculation. So interest on the lease for this first year is 10% ( 25,000 – 2,000 ) = 2,300 and that’s the amount which is included within the Statement of Income for the year as a finance charge.

      Where are you finding the 300?

  6. avatar says

    Hi,
    Could you please explain why we shouldn’t have accounted for:
    - the cash received for the shares issue (+13,5kk);
    - the invoice received from the leasing company (principal + interest= 8.3kk)
    - the cash paid to the leasing company (deposit 2kk and principal first rate 6kk)

    I am having difficulties in understanding which information is already included in books and which information is not.

Leave a Reply