• Profile photo of MikeLittle says

      There’s no lecture on it but there are course notes. You say it’s the hardest topic in P2 but that is just your opinion. I don’t think it’s the hardest topic in P2, but that’s my opinion!

      As a topic, deferred tax is so rarely asked in a P2 exam that it did not / does not feature in my mind as a topic worth spending a lot of time on. If it were to appear in question 1, it may be worth 4 – 6 marks. If it came up in 2 or 3 it’s only going to be a part question and is avaoidable anyway by not attempting that question

      The lectures are recorded over a 5 day P2 course and that time constraint does not allow the luxury of lecturing the entire syllabus. Deferred tax did not merit any greater attention than “Read the course notes and get a general understanding of the topic”

      Sorry :-(

  1. avatar says

    Another solution:

    Yearly payment Interest Principal payment Principal Balance Accrual interest Total Liability
    13,161.00 1,839.00 15,000.00
    1 3000 3,000 10,161.00 1,839.00 12,000.00
    2 3000 711.27 2,289 7,872.27 1,127.73 9,000.00
    3 3000 551.06 2,449 5,423.33 576.67 6,000.00
    4 3000 379.63 2,620 2,802.96 197.04 3,000.00
    5 3000 196.21 2,804 (0.83) 0.83 –
    15,000 1,838 13,162

    The above table is to spread out the interest charge of $1,839 for the whole term loan Then there is no interest charge recorded Profit Loss statement on 31/10/2010 and balance sheet should shows Liability part as below
    current liability : $3000
    Accrual interest ($711)

    non current liability; $9000
    Accrual interest; ($1,128)

    Which one is correct?? Please help me

    • Profile photo of MikeLittle says

      Heaven knows what you’re doing in the complicated table at the start of your post! At the end of the first year and the first real instalment is due to be paid “tomorrow”, the interest accrual is 711 and the capital current liability is 2,289

      Does that sort it out for you?

      • avatar says

        Thanks for your promptly reply. Sorry for messy figure in my post, I did the table by using excel. However when I copied here, all format has been gone.

        It is still vague to me. If the interest accrual is 711 and the capital current liability is 2,289 at 31/12/2010. Then Profit and Loss for 2010 FY shouldn’t claim 711 interest charge as per the answer in the lecture note. Am I correct?


      • Profile photo of MikeLittle says

        Why not? What’s the double entry to record an accrual? Dr Expenses 711 Credit Liabilities? 711

        The expense gets written off to Statement of Income, the Liability is shown as such on the Statement of Financial Position

      • avatar says

        Oh i see now. I was getting confused with Australian accounting treatment for Chattel Mortgage/hire purchase

        Thanks for your time and patience with me :).



      • Profile photo of MikeLittle says


        I don’t think there is one on IFRS 2

        OIf you can’t find it on the site, it doesn’t exist or, put another way, if it exists, it will be on the site somewhere

  2. avatar says

    @MikeLittle: Your lecture is very appreciated and helping a lot for us with ACCA exam/. It is much easier to understand the IAS/IFRS for those who do self study like me. The exam date is coming, so i wish the best for all students.

    Regarding to example No 1, I would clarify with you about the calculation of the interest charge of $711. With my understand,
    the lease assets had PV of $13,161 at 01/10/2010
    but total liability was $3,000 x 5 = $15,000 (total amounts need to be paid by lessee to lessor from 01/10/2010 to 31/12/2004)
    So total accrual interest charge for the whole term loan would be; 15,000 – 13,161 = 1,839, it means total interest charge for each year is : $1,839 :5 = 368

    If interest charge per year is $711, then times 5 years, it is more than $1,839.

    Could you clarify with me? I am getting confusing with this.

    Again, thanks so much for your help

    • Profile photo of MikeLittle says

      What you are trying to do is alocate interest on a straight line basis. That’s ok for sme’s or where the amounts involved are immaterial but it’s an awful method and doe not fairly represent the way in which interest is accrued.

      13,161 is the cost of the asset and 3,000 is paid straight away. So, in effect, only 10,161 is being “borrowed”. At 7% calculated on the reducing balance basis, you’ll find that the interest in the first year is in fact 711 …. but let me know if you’re still struggling

      • Profile photo of MikeLittle says

        It may well be – but it’s still an awfully simplistic way of allocating finance lease interest.

        Fortunately, in the near future, if IASB carries its exposure draft through to final IFRS, we shall not be faced with the problems of determining whether a lease is finance or operating

  3. Profile photo of anisa786 says

    In the solution the interest rate is 7 percent where it is calculated by using 10161/3000 to give you 3.387 it then says that taking this at 4 years should give you 7 percent please tell me how to calculate this as i have tried on my financial calculator and did not come right Thanks

  4. avatar says

    Hi Mike Little,
    In this Lease “example 1” video, the depreciation is charged for 4 years but in the notes (answer pg. 218) it is charging depreciation for 5 years.
    Which one is to be correct?
    Thank you in advance

    • Profile photo of MikeLittle says

      @zainy52, Hi

      I don’t have the notes available and I cannot face the prospect of listening to myself on the recording.

      The correct period is “over the shorter time of the lease term and the estimated useful life of the asset”

      Clearly I have made a mistake in either the recording or in the notes but hopefully this “explanation” should help you to determine which is the correct period over which the asset should be depreciated.

      Is that enough?

      ( and thank you for pointing out the inconsistency / error! )

  5. avatar says

    i think what On Kei CHUNG is trying to say is in the downloadable answers, the useful life is still like this one 4 years. despite this, the depreciation is calculated dividing by 5, when in this video mike divides by 4. What is the correct method to do it? thanks in advance.

  6. avatar says

    In example one why the prof use different years in his calculations, he started with 1.1.05 to 1.1.09 does him means 2005-2009?is there any meaning? because the qn shows that it is from jan 2010…

    • avatar says

      The question says its 4 annual payments commencing 1Jan 2011. The deposit of 3000 on 1Jan 2010 is not part of the annual payments but reduces the amount ‘borrowed’ from 13161 to 10161.Therefore liability is actually 10161 and the payments of 3000 effectively start Jan 2011. I dont know if this makes sense to you. Am not sure, that is how I interpreted Question

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