1. avatar says

    Hi Mike,
    I have got a question in reference to Reconciliation of Obligations under Finance Leases with the present value of the minimum lease payments

    We know that from questions that the lease is for 7 years term. I cant get my head around why is it only 5 years is taken in to account. This is an extract from answers from lecture notes.

    Why aren’t we saying that over 5 years are 2 x 3000, hence 6000. Why is it only 1 lease payment shown in payable more than 5 years.

    Payable within 1 year 3,000
    Payable more than 1 year, less than 5 years 12,000
    Payable more than 5 years 3,000

    I understand you are busy man but i will really appreciate Mike if you can please help.

    • avatar says

      Sir, please ignore above. I was under the impression that this was from the reconciliation was from beginning of the time (start of lease) which is not the case. This will be dependent on the how many payment period has been lapsed.


  2. avatar says

    Dear Mr. Mike,
    Could you tell me, please, for the task with Giedruola, how have you calculated “Financial lease interest not yet accrued” for “Reconciliation of Obligations…with minimum lease payments”?

    Thank you in advance for answering my question.


  3. avatar says

    Thank you for a great lecture Mike. Could you please explain how the current liabilities and long term liability is calculated ? i am a bit confused about it, how come the log term liability is the remainder amount at the end of year 2 and current the difference between year 2 and year 1. what is the logic as we are preparing the financial statement as at the end of year 1 as per question? Thank you in advance

    • Avatar of MikeLittle says

      That’s an easy one! We know the total liability (say 30,000) at the end of the year and that total amount is payable over the next (say) 5 years. But we need to know how much is payable within twelve months (current) and how much is payable in periods more than twelve months hence (deferred)

      If I calculate the amount outstanding at the end of NEXT year (say 23,000), then that figure represents the element of the current year’s total obligation (30,000) which will still be outstanding twelve months hence.

      Thus we can see that, of that 30,000, 23,000 will not be paid in the current year and is therefore deferred whereas our liability will fall by 7,000 (30,000 – 23,000) over the next twelve months and that must represent the current element of the 30,000


      • avatar says

        @ MikeLittle:
        I got the logic behind calculating Current Liability. However can you please explain why we take the figure as at the end of the next year as NCL?


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