1. Profile photo of rajaasifahmed says

    Sir in reconciliation of PV ( Giedrius)

    5. £3000 (gross). Net £1712 but I divide £3000 by 1.10 by 6 times it gives me £1693 again different . That’s what you told us in example 1. Please advise

    • Profile photo of MikeLittle says

      Just one question before I agree with you – just confirm that the cost of capital is 10%

      If it is, then I must agree with you, I also have just calculated it to be 1,693

      I probably did it by mental arithmetic the first time (but I’ve just done it again in my head, so that’s no excuse)

      • Profile photo of rajaasifahmed says

        Thanks for prompt response. Sir can you please advise any trick to convert gross amount into net. As we can’t calculate all interest & instalment payment till end nil balance . As we just have to calculate till year end of year 2.

      • Profile photo of MikeLittle says

        You will NOT EVER be required to calculate the interest for more than “this year and the next”

        I need to think again about the 1,712 / 1,693 issue – I suppose it could just be rounding but that’s unusual – I try not to be guilty of rounding too much

  2. Profile photo of zee says

    the Lease interest calculation changes depending on the rental payment done in advance and rental payment done in arrears. How this will effect the interest calculation table?

    • Profile photo of MikeLittle says

      It doesn’t change the basic principles at all. What you should always have clearly in your mind is the dates the payments are made and how much capital has been outstanding for how many months

      Otherwise, it’s just the same! Capital brought forward since last installment paid, add on the interest accrued on that capital (pay GREAT attention to the dates / periods) pay the next installment (beware, it may be paid “tomorrow” in the next accounting year) and that will give you a capital amount outstanding to which you will apply the same principles ie add interest, deduct payment, add interest, deduct payment, add inte……

  3. avatar says

    on example 2 calculation for Giedrius why is it written deposit Jan 2004 $1152? I thought it is Jan 2009 as the question said that the deposit was 1 Jan 2009 $1152. why are we using the actuarial method in this example?

    • Profile photo of MikeLittle says

      Hi Sharly

      Where exactly does it say “deposit paid Jan 2004”?. The notes say 2009. The lecture may say 2004 but that’s because it was a recorded lecture from a previous (original) version.

      You need, mentally, to move the years in the lecture forward by 5.

      We are using the actuarial method because the rate of interest is given in the question


  4. avatar says

    Hi all..does anyone know how the net figures came out of reconciliation of obligations under finance leases ..the gross is understood was 2790,8793,1712 calculated…thank you for your help..Mike! Can you help?

    • Profile photo of MikeLittle says

      Yes, but I wish that you had posted this on the Ask the Tutor page!

      These figures represent the present day discounted value of the future instalments

      So, $3,000 discounted at the rate of 10% for 1 year is $2,790 (it’s actually $2,727)

      $3,000 discounted for 5 years at the rate of 10% gives us $1,712 (actually it’s $1,863 – that could also be incorrect – I’ve just arrived at the figure through mental arithmetic – I don’t have a calculator to hand)

      I trust that that would have been helpful back in June!

      • avatar says

        Excuse me Mike, does it mean, that figures 2790 and 1712 in course notes are incorrect? Because if we simply calculate 3000 by dividing on 1.1 or (1.1)^6 – the figures are different

      • Profile photo of MikeLittle says

        Hi Pavel – yes – if my most recent post calculations are correct, then the figures in the course notes are rounded badly. The figures in my recent post were done to a degree of accuracy not necessary in the exams – normally the examiner will expect you only to work to 2 decimal places – and that’s also in the rare event that there is a lease calculation question in the exam – that, itself, is highly unlikely

  5. avatar says

    Guys, the way I understand it, is that the question is asking us for figures that will appear in financial statements at the y/e 31/12/2009. In other words they are asking us what will be treated as CL (payable within next 12 months time) and what will be treated as NCL (paid after 12 months from the y/e 31/12/2009). Therefore we need figures at y/e 31/12/2010 to figure out what will be payable within next 12 months from y/e 31/12/2009 (CL) and what will be paid afterwards (NCL).
    Please correct me if I am wrong.

  6. 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.


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