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bereank says

Mike, many thanks once again for your clear explanation.

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

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)

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.

rajaasifahmed says

Yes it’s 10% interest rate.

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

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?

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……

sharly says

please Sir I need help,im lost, why does the interest charge calculation start from year Jan 2004, not Jan 2009?

MikeLittle says

Sharly – it’s the same answer as in my last answer to your last question.

The recording was made using a previous version of the notes. The figures haven’t changed – just the year end. To bring the question more recent, I have added 5 years onto 2004 and arrived at 2009.

All the calculations are valid / correct – it’s just that I didn’t re-record the lecture

OK?

MikeLittle says

Sorry Sharly, I answered this one before I read your next two!

sharly says

thank you sir! very clear now

MikeLittle says

You’re welcome

sharly 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?

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

OK?

sharly says

ok Sir I clearly understand now … thank you Sir, no need to reply my second question again.

sharly says

so it means that interest in year jan 2005 will now be jan 2010, ok thank a lot.

kurpatel says

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

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!

Pavel 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

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

izabiello 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.

MikeLittle says

That’s correct!

fahim231 says

helllo i am still a little unclear on the logic of how to calculate the current liabilites and non current liabilities…….can you please explain this

rule3 says

I’m having trouble understanding the TNCA calculation. Can you please indicate what values are being used?

Thanks.

MVS 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.

MVS 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.

Thanks.

olyakosh 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.

Olga

thandiwe says

i dont even know where to start from am so confused everything was flowing well until 3minutes into the video then you lost me,i dont understand where those figures are coming from, please help me

MikeLittle says

I can only assume that you cannot see where the figures for interest come from. I suspect that you are not able to calculate 10% on an amount for HALF A YEAR.

If that hasn’t resolved your difficulties, please post again

thandiwe says

i got confused for a minute but after watching the entire video i now understand where a the figures are coming from, thank you

MikeLittle says

Ok, thanks for letting me know

kurpatel 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

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

OK?

Accountaholic 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?

Thanks

babubamfo says

i want to understand leasing ias 17.can someone help me out.

absylum007 says

i read the previous comments and like them i am confused too , how did you get TNCL (total non current liabilities ) and TCL(total current liabilities figure ) ????

MikeLittle says

Read my reply to Ahmer and see if that clears up the confusion

ahmer says

Dear Mike your answer should be that the current liability is 795+835= 1630 not 1712 because payments are on 01 / january not on 1 / july.and so on plz explain?

MikeLittle says

but how much interest RELATES to the accounting period? The payment on 1 July paid off the interest that had accrued for the period from 1 January up to 30 June. Interest then accrues from the period from 1 July up to 31 December – but that interest is not paid until “tomorrow” when we pay the next instalment on 1 January next year.

Does that clear it up?

mahoysam says

Leases seemed so difficult at the beginning and I had no idea what’s going on O.o But then when I studied the chapter after watching the lecture I feel better about it!

Thanks a lot!

sunnyenen says

Hello, sir, I am a bit confused. Why cash change was not in the SoFP?

eadinnu says

Sir,

Thank you for the excellent lecture. However, I suggest that you help us to solve part two of the question for a simple reason. The logic used to determine the non current liability and the current liability seems to be different if the rentals are paid in advance. I have not been able to decode this logic. I came across it in Kaplan.

Thank you in advance!

MikeLittle says

Hi

It’s simple enough – just work out the dates and amounts of the payments to be made in the next ( say ) two years and you can then see how much is to be paid in the next twelve months and therefore how much is a long term debt

eadinnu says

Thanks

loopheichuen says

May I know why we started from 2004? Question said they acquired the asset on 1 January 2009. I am so confused.

mahoysam says

If you check the notes, you will find the correct year at the back . Maybe the lecture is recorded when the question had a different year or something, but the answers in the notes have the correct year anyways.

haidernchd says

in Giedris, why we calculated the lease for two years while the questions asked to prepared the extracts for year ended 31-12-2009. the lease started on 01-01-2009. It should be only one years…..

bajprincess says

@haidernchd, Hi… calculating for the 2yrs will assist with the determination of Current Liabilities reported at the end of the 1st yr…at least I found that it helped.

MikeLittle says

@bajprincess, You’re absolutely correct. We need to subdivide the obligation to the lessor into current and long term and the easiest way is to progress the calculations up to the end of the accounting year following the year we are asked to consider

ppatterson says

In example two (Giedris) the estimated used life of the asset was nine (9) years however seven (7) years was used to calculate the depreciation. It was noted that seven (7) years was not mentioned in the question at any point. Why was the depreciation worked at seven (7) years.

MikeLittle says

@ppatterson, 14 half yearly instalments? depreciate over the lesser of useful life and lease term!

jehanhasan says

or this is two different contracts, if different contracts then what about this question, how it is calculated , i am a little bit confused about it.

MikeLittle says

@jehanhasan, You could really do with a “picture” of the “obligations account” where you show the capital amount outstanding and show the dates when the capital amount is then changed by the interest calculated on that capital amount. Then show the payment of the installment and the date and that should then leave you with the capital amount outstanding for the next period until we again calculate the interest ….. and so on

jehanhasan says

sir in example 1 the payment is in arears and in example two it is clearly written that the rental payment is on 1st january and 1 july but in your answer , you did write the payment of 1500 on 30 june and 31 december so my question is, if the payment date does n,t effect the calculation then why it is mentioned clearly in question ? kindly explain about it.

kind regards

MikeLittle says

@jehanhasan, It DOES affect the calculation – the payment date determines the capital element outstanding at any point in time and it’s the capital element upon which the interest is calculated until the next installment date

ribberson says

Where do you get the TNCA figure of 13714 from?

Thanks

MikeLittle says

@ribberson, Cost less depreciation?

fzinyemba says

dears Sir, Am I correct to think this question video was mixed on editing. At around 3 mins 5 secs the working figures appear to be suddenly totally different from the figures about 15 seconds before..i’m confused. Please view the video from 2min 45 sec to 3min 15 secs

MikeLittle says

@fzinyemba, Hi, no, it’s fine. The screen shots you refer to are the situation / schedule after two payments ( the earlier screen ) and then 2 instalments after that. If you look upwards from the second screen, you’ll find 15,295 higher up.

It’s just that the second screen doesn’t show the 15,295 from the first screen

Is that clear? I know what I’m trying to say but it seems to have come out a bit jumbled!

fzinyemba says

@MikeLittle,

Thanks Mike,

Now it makes sense to me.

your lectures are brilliant

MikeLittle says

@fzinyemba, 🙂

albertabediacca says

there is something wrong with leasing i should think so cos i have played it twice and i don’t understand a thing. you still the best for me Mike so jus check it up

aardvark says

Dear Sir

Why have you started with 2004? The notes state that Giedris aquired asset on 1 January 2009 this I believe is the same for example 1

Should it start with 2009 the year when the asset was aquired?

Many thanks

rimisac says

I do not understand the answer to this question. I am completely confused,

MikeLittle says

@rimisac, I’ll look at the question – possibly tomorrow, when I have a bit of time

zamina says

Sir, I don’t understand the answer to Giedruola that you said we do it ourselves especially extract of the SoFP where its written in the answer as follows:

TNCA 13714

C.L 1712

LTL 11583

Interest

not yet

accrued 665

My question is why is it the same as Gieoris and that figure of 665, its confusing please if u can help.

Zamina.