1. avatar says

    In example 3 it is said that Total payments to the finance lease creditor in the year were $9,000, of which $1,800 is interest.Agnes has included the full $9,000 in the obligations under finance lease account.

    If Agnes has included the full 9000 as obligations as under finance lease payment means she hasn’t accounted for the 1800 interest in the Income Statement, so why don’t we reduce it from profit before Tax?

    • Profile photo of MikeLittle says

      Because it’s not included in the interest charge for the year. She has credited cash and debited the obligations account

      So, to correct it, she needs to credit the obligations account and debit the finance lease interest account

      And that’s why the interest PAID needs to be increased by that $1,800


      • Profile photo of MikeLittle says

        No! I believe that the question asks for the interest charge to be added back.

        After the adjustment has been put through, the very simplisict answer is that interest of whatever figure + 1,800 should be added back

        But you can’t add it back if it hasn’t been deducted in the first place!

        The question is aimed at determining the interest add back ie just calculate the interest that SHOULD HAVE been charged and then addition back

        It’s an exercise in determining the accruals based interest with the cash based interest.

        Don’t get too heavily involved in what “correct” entries should have been.

        Concentrate purely on determining the interest add back

        There are enough difficulties in completing a cash flow correctly without you picking me up on the detail of “has it been, has it not been?”


  2. avatar says

    In the past paper examinor gave the previous year balances of land and buliding thats opening and closing balancesand there is a alot of information like disposals depreciation etc . But ur in example there is only one year balance i dnt understand how to tackle the property plant adjustment in exam because there is opening and closing balances

  3. Profile photo of manonaseriousmission says

    LEGENDARY MR MOFFAT: “And 4 maarks is how many miuntes scouters?”

    Student answers quietly in the background (“12″)


    Hahahahaha.. weirdly, i rewound that bit for up to 5 times just for a good laugh.. must be fun being in John’s class :)

  4. avatar says

    The lecturer is amazing, but I have a problem. The 915 on the cr side of t accounts is still the dividends payable. While I do understand that we have created an obligation by declaring or proposing the dividend, how can I judge and conclude that from the question? The question looked pretty straight forward to me ( .. how do we know that we have to classify 915 as I/S obligation? What is the key indicator?

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