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Greetings dear sir,
On 1 April 2011, Fresco acquired an item of plant under a finance lease agreement that had an implicit finance cost of 10% per annum. The lease payments in the trial balance represent an initial deposit of $2 million paid on 1 April 2011 and the first annual rental of $6 million paid on 31 March 2012. The lease agreement requires further annual payments of $6 million on 31 March each year for the next four years. Had the plant not been leased it would have cost $25 million to purchase for cash.Why they did not use 6m* 5=30mil/1.10 = 27272.7272 to calculate pv value of lease liability
Instead they used FV-initial deposits
I understand why initial deposits are deducted but why not use pv?Sorry sir small mistake in posting question.
That mistake is 6000*3.791 (annuity factory 5yrs @10%)=22,746
Why not use this amount?
Why they used 23000 in calculating lease liability?Hi,
I would be using the 22,746 and not the figure that has been used of 23,000 (could it just be rounded up for simplicity?)
Please note, and it is important, that this is an old question and finance leases no longer exist for the lessee under the updated IFRS 16.
Thanks
Yes sir got it,
Thanks.May I ask one more please
At 1 October 20X7, Mcllroy Co had an 80% holding in Spieth Co and a 65% holding in Clarke Co.
On 30 September 20X8, Mcllroy sold all of its 65,000 $1 shares in Clarke Co for $582,000. No accounting entries have been made to record the disposal, other than to record the disposal proceeds in a suspense account. The disposal is the final part of a plan by Mcllroy Co to dispose of Clarke Co’s operations because it operates in separate business sector to the other companies in the group. Clarke Co’s retained earnings at 1 October 20X7 were $286,000. Mcllroy Co measures all non-controlling interests using the proportionate method.
The draft individual statements of profit or loss of the three companies are shown below:
Adjustment
2) Mcllroy Co acquired its holding in Clarke Co several years ago for $268,000 when Clarke Co’s retained earnings were $174,200. The fair values of Clarke Co’s net assets at the date of acquisition were the same as their carrying amounts. The goodwill in Clarke Co was impaired by $25,000 in the year ended 30 September 20X7. No further impairment of the goodwill in Clarke Co is required in the current year.Answer:
Consideration transferred = 268000
NCI @ acquisition(274200*35%) = 95970
Less net asset at acquisition =(274200)
(100000+174200)
Goodwill =89770
Less impairment loss =(25000)
Goodwill at disposal = 64770How do we get 100k in net asset at acquisition?
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