OpenTuition.com Free resources for accountancy students
Free ACCA lectures and course notes | ACCA AAT FIA resources and forums | ACCA Global Community
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
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?
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?
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
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 :).
Mike, btw I couldn’t locate your lecture of IFRS 2 – Share based payment. Is it still in processing?
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
@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
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
Totally agree, it is using in practice for SME:. Thanks
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
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
if you use financial calculator, please try CMPD button, then enter :
n = 4
PMT = 3000
PV = -13161 +3000= -10161
Then it will give you i% = 7
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
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! )
@MikeLittle, I agree with the recording – Depreciation: 4 years.
Thank you once again.
@zainy52, You’re welcome, and thanks again for pointing it out to me
in the cash flow statement you are saying we have 3000 under Financing activities. Here you mean the payment of the deposit and not the 1st repayment – am I correct?
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.
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…
It’s possible that notes have updated dates
But the lecture uses notes before the update
@admin, Please check this to clarify. Notes that I have (recently downloaded) says lease commences Jan 2011, while video says 2005.
Video was probably done with previously updated notes.
video says 2005? that’s an error. opentuition did not exist in 2005.. video is probably older (2011 or 2010) than the notes, but still OK
just want to check if the lease term on example 1 should be 5 years? (with 4 annual payment + deposit) as shown in the answer?
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
why was d initial instalment of 3000 nt charged to d income stmt..
Because it is like a deposit. In substance it is like borrowing 13161-3000= 10161. I dont know if Mr Little can explain it better if this does not help
sorry 1 had 43 fail i will attend lectures this time/ congrat to those who passed
did u self studied that you got 43 ??
You must be logged in to post a comment.
ACCA F1 / FIA FAB Dec 2013 Exam was...
ACCA F2 / FIA FMA Dec 2013 Exam was...
ACCA F3 / FIA FFA Dec 2013 Exam was...
F4 Dec 2013 Exam was... Post comments
F5 Dec 2013 Exam was... Post comments
F6 Dec 2013 Exam was... Post comments
F7 Dec 2013 Exam was... Post comments
F8 Dec 2013 Exam was... Post comments
F9 Dec 2013 Exam was... Post comments
P1 Dec 2013 Exam was... Post comments
P2 Dec 2013 Exam was... Post comments
P3 Dec 2013 Exam was... Post comments
P4 Dec 2013 Exam was... Post comments
P5 Dec 2013 Exam was... Post comments
P6 Dec 2013 Exam was... Post comments
P7 Dec 2013 Exam was... Post comments
Return to top of page
Copyright © 2013 · Privacy and Cookies · Advertising · Contact us · Sitemap · Log in