# IAS 17 Leases Example 2

1. 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”?

Olga

2. 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

• 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.

• 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

3. 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

• 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?

• 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

4. 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 ) ????

5. 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?

• 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?

6. 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!

7. 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.

• 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

8. says

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

• 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.

9. 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…..

• 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.

• 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

10. 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.

• says

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

11. 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.

• 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

12. 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

• 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

13. 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

• 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!

• says

@MikeLittle,

Thanks Mike,

Now it makes sense to me.

14. 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

15. 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

16. 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.