I am watching your lecture chapter 16 IRS 16 leases and I can not see the examples you are looking at in your notes. Please advise where I can find the examples so that I can reference to your notes.

In the calculation of Giedruola TNCA, why did you use the figure 11,583, isn’t that the balance upto 1st july 2010? Why are we not taking the balance upto 31 December 2010, Which is including the interest of 579, balance 12,162?

hiya mike, I have a question about chapter 16 leases example 2, Giedrus, why you chose year 2004 instead of 2009? or its simple updated example now from 2004 to 2009?????

Hello, I have a question about example 2. For LTL in F/P, why it has amount calculated for 2 years? The example required F/S for 2009. In Addition, although Dep and Finance interest has accounted for a year, resulting TNCA as 13,714(=16,000-2,286 dep for 09) , why only liabilities are calculated for 2 years?

5. £3000 (gross). Net £1712 but I divide £3000 by 1.10 by 6 times it gives me £1693 again different . That’s what you told us in example 1. Please advise

Thanks for prompt response. Sir can you please advise any trick to convert gross amount into net. As we can’t calculate all interest & instalment payment till end nil balance . As we just have to calculate till year end of year 2.

You will NOT EVER be required to calculate the interest for more than “this year and the next”

I need to think again about the 1,712 / 1,693 issue – I suppose it could just be rounding but that’s unusual – I try not to be guilty of rounding too much

the Lease interest calculation changes depending on the rental payment done in advance and rental payment done in arrears. How this will effect the interest calculation table?

It doesn’t change the basic principles at all. What you should always have clearly in your mind is the dates the payments are made and how much capital has been outstanding for how many months

Otherwise, it’s just the same! Capital brought forward since last installment paid, add on the interest accrued on that capital (pay GREAT attention to the dates / periods) pay the next installment (beware, it may be paid “tomorrow” in the next accounting year) and that will give you a capital amount outstanding to which you will apply the same principles ie add interest, deduct payment, add interest, deduct payment, add inte……

Sharly – it’s the same answer as in my last answer to your last question.

The recording was made using a previous version of the notes. The figures haven’t changed – just the year end. To bring the question more recent, I have added 5 years onto 2004 and arrived at 2009.

All the calculations are valid / correct – it’s just that I didn’t re-record the lecture

on example 2 calculation for Giedrius why is it written deposit Jan 2004 $1152? I thought it is Jan 2009 as the question said that the deposit was 1 Jan 2009 $1152. why are we using the actuarial method in this example?

Where exactly does it say “deposit paid Jan 2004”?. The notes say 2009. The lecture may say 2004 but that’s because it was a recorded lecture from a previous (original) version.

You need, mentally, to move the years in the lecture forward by 5.

We are using the actuarial method because the rate of interest is given in the question

Hi all..does anyone know how the net figures came out of reconciliation of obligations under finance leases ..the gross is understood ..how was 2790,8793,1712 calculated…thank you for your help..Mike! Can you help?

Yes, but I wish that you had posted this on the Ask the Tutor page!

These figures represent the present day discounted value of the future instalments

So, $3,000 discounted at the rate of 10% for 1 year is $2,790 (it’s actually $2,727)

$3,000 discounted for 5 years at the rate of 10% gives us $1,712 (actually it’s $1,863 – that could also be incorrect – I’ve just arrived at the figure through mental arithmetic – I don’t have a calculator to hand)

I trust that that would have been helpful back in June!

Excuse me Mike, does it mean, that figures 2790 and 1712 in course notes are incorrect? Because if we simply calculate 3000 by dividing on 1.1 or (1.1)^6 – the figures are different

Hi Pavel – yes – if my most recent post calculations are correct, then the figures in the course notes are rounded badly. The figures in my recent post were done to a degree of accuracy not necessary in the exams – normally the examiner will expect you only to work to 2 decimal places – and that’s also in the rare event that there is a lease calculation question in the exam – that, itself, is highly unlikely

Guys, the way I understand it, is that the question is asking us for figures that will appear in financial statements at the y/e 31/12/2009. In other words they are asking us what will be treated as CL (payable within next 12 months time) and what will be treated as NCL (paid after 12 months from the y/e 31/12/2009). Therefore we need figures at y/e 31/12/2010 to figure out what will be payable within next 12 months from y/e 31/12/2009 (CL) and what will be paid afterwards (NCL). Please correct me if I am wrong.

Hi Mike, I have got a question in reference to Reconciliation of Obligations under Finance Leases with the present value of the minimum lease payments

We know that from questions that the lease is for 7 years term. I cant get my head around why is it only 5 years is taken in to account. This is an extract from answers from lecture notes.

Why aren’t we saying that over 5 years are 2 x 3000, hence 6000. Why is it only 1 lease payment shown in payable more than 5 years.

Payable within 1 year 3,000 Payable more than 1 year, less than 5 years 12,000 Payable more than 5 years 3,000

I understand you are busy man but i will really appreciate Mike if you can please help.

Sir, please ignore above. I was under the impression that this was from the reconciliation was from beginning of the time (start of lease) which is not the case. This will be dependent on the how many payment period has been lapsed.

togwe says

Morning Sir,

I am watching your lecture chapter 16 IRS 16 leases and I can not see the examples you are looking at in your notes. Please advise where I can find the examples so that I can reference to your notes.

Thank you.

ACCAstudent says

In the calculation of Giedruola TNCA, why did you use the figure 11,583, isn’t that the balance upto 1st july 2010? Why are we not taking the balance upto 31 December 2010, Which is including the interest of 579, balance 12,162?

MikeLittle says

Because the disclosure of the liability is the capital element only

The accrued interest is a separate disclosure within current assets

utmanz says

hiya mike,

I have a question about chapter 16 leases example 2, Giedrus, why you chose year 2004 instead of 2009? or its simple updated example now from 2004 to 2009?????

Kibum says

Hello, I have a question about example 2.

For LTL in F/P, why it has amount calculated for 2 years?

The example required F/S for 2009.

In Addition, although Dep and Finance interest has accounted for a year, resulting TNCA as 13,714(=16,000-2,286 dep for 09) , why only liabilities are calculated for 2 years?

MikeLittle says

What’s the name of the question or the page number in the course notes?

Kibum says

page90, chapter 16 Lease

Giderius example

chiranjeev says

Hi

I did not get the value of TNCA in example 2 how it is 13714.

Thanks

MikeLittle says

Cost $16,000, depreciation $2,286?

chiranjeev says

How this Depreciation was calculated?

chiranjeev says

How this depreciation is calculated…??

Asset value is 16000 and useful life is 9 years. So if I divide 16000 by 9 then I will get 1778 approx.

Please clarify this.

MikeLittle says

I thought useful life was 7 years

chiranjeev says

I was going through the lecture again you said that the lease term is 7 years. ‘lease terms’

Is it from 14 instalments of 1500 paid twice in an year?

chiranjeev says

Sir Please reply….

MikeLittle says

Chianjeev, if you want to be sure that I see your posts, post them on the Ask ACCA Tutor forum, NOT the general forum

You were fortunate that I saw this post (or unfortunate, depends on how you look at it!)

I always answer questions on the Ask ACCA Tutor page – look back through 129 pages of F7 Ask ACCA Tutor questions

I rarely see, let alone reply to, questions in the general forum … so don’t post impassioned please like “Sir please reply ….”

If you want a question answered, then ask it in the right place

Yes, 14 instalments payable half yearly gives me a lease term of 7 years

Ayesha says

i cant find this example in notes. Please advise where is it?

MikeLittle says

It’s on page 90!

Marianne says

Hi Mike,

Can you explain why the LTL in Giedruola is 11583 and not 12162?

MikeLittle says

Put this question in the Ask the Tutor forum, please

gyeraldyne says

Hi Mike,

I was just wondering why you used 7 years when calculating the TNCA instead of 9 years. where did you get the 7 years from please?

gyeraldyne says

Hi Mike

please ignore my question above, I have gone back to the question and i think i get it…

but correct me if i am wrong…

its 14 instalments paid twice in a year, hence within 7 years the 14 instalments are fully paid up making the lease term 7 years right?

MikeLittle says

Correct

bereank says

Mike, many thanks once again for your clear explanation.

rajaasifahmed says

Sir in reconciliation of PV ( Giedrius)

5. £3000 (gross). Net £1712 but I divide £3000 by 1.10 by 6 times it gives me £1693 again different . That’s what you told us in example 1. Please advise

MikeLittle says

Just one question before I agree with you – just confirm that the cost of capital is 10%

If it is, then I must agree with you, I also have just calculated it to be 1,693

I probably did it by mental arithmetic the first time (but I’ve just done it again in my head, so that’s no excuse)

rajaasifahmed says

Thanks for prompt response. Sir can you please advise any trick to convert gross amount into net. As we can’t calculate all interest & instalment payment till end nil balance . As we just have to calculate till year end of year 2.

rajaasifahmed says

Yes it’s 10% interest rate.

MikeLittle says

You will NOT EVER be required to calculate the interest for more than “this year and the next”

I need to think again about the 1,712 / 1,693 issue – I suppose it could just be rounding but that’s unusual – I try not to be guilty of rounding too much

zee says

the Lease interest calculation changes depending on the rental payment done in advance and rental payment done in arrears. How this will effect the interest calculation table?

MikeLittle says

It doesn’t change the basic principles at all. What you should always have clearly in your mind is the dates the payments are made and how much capital has been outstanding for how many months

Otherwise, it’s just the same! Capital brought forward since last installment paid, add on the interest accrued on that capital (pay GREAT attention to the dates / periods) pay the next installment (beware, it may be paid “tomorrow” in the next accounting year) and that will give you a capital amount outstanding to which you will apply the same principles ie add interest, deduct payment, add interest, deduct payment, add inte……

sharly says

please Sir I need help,im lost, why does the interest charge calculation start from year Jan 2004, not Jan 2009?

MikeLittle says

Sharly – it’s the same answer as in my last answer to your last question.

The recording was made using a previous version of the notes. The figures haven’t changed – just the year end. To bring the question more recent, I have added 5 years onto 2004 and arrived at 2009.

All the calculations are valid / correct – it’s just that I didn’t re-record the lecture

OK?

MikeLittle says

Sorry Sharly, I answered this one before I read your next two!

sharly says

thank you sir! very clear now

MikeLittle says

You’re welcome

sharly says

on example 2 calculation for Giedrius why is it written deposit Jan 2004 $1152? I thought it is Jan 2009 as the question said that the deposit was 1 Jan 2009 $1152. why are we using the actuarial method in this example?

MikeLittle says

Hi Sharly

Where exactly does it say “deposit paid Jan 2004”?. The notes say 2009. The lecture may say 2004 but that’s because it was a recorded lecture from a previous (original) version.

You need, mentally, to move the years in the lecture forward by 5.

We are using the actuarial method because the rate of interest is given in the question

OK?

sharly says

ok Sir I clearly understand now … thank you Sir, no need to reply my second question again.

sharly says

so it means that interest in year jan 2005 will now be jan 2010, ok thank a lot.

kurpatel says

Hi all..does anyone know how the net figures came out of reconciliation of obligations under finance leases ..the gross is understood ..how was 2790,8793,1712 calculated…thank you for your help..Mike! Can you help?

MikeLittle says

Yes, but I wish that you had posted this on the Ask the Tutor page!

These figures represent the present day discounted value of the future instalments

So, $3,000 discounted at the rate of 10% for 1 year is $2,790 (it’s actually $2,727)

$3,000 discounted for 5 years at the rate of 10% gives us $1,712 (actually it’s $1,863 – that could also be incorrect – I’ve just arrived at the figure through mental arithmetic – I don’t have a calculator to hand)

I trust that that would have been helpful back in June!

Pavel says

Excuse me Mike, does it mean, that figures 2790 and 1712 in course notes are incorrect? Because if we simply calculate 3000 by dividing on 1.1 or (1.1)^6 – the figures are different

MikeLittle says

Hi Pavel – yes – if my most recent post calculations are correct, then the figures in the course notes are rounded badly. The figures in my recent post were done to a degree of accuracy not necessary in the exams – normally the examiner will expect you only to work to 2 decimal places – and that’s also in the rare event that there is a lease calculation question in the exam – that, itself, is highly unlikely

izabiello says

Guys, the way I understand it, is that the question is asking us for figures that will appear in financial statements at the y/e 31/12/2009. In other words they are asking us what will be treated as CL (payable within next 12 months time) and what will be treated as NCL (paid after 12 months from the y/e 31/12/2009). Therefore we need figures at y/e 31/12/2010 to figure out what will be payable within next 12 months from y/e 31/12/2009 (CL) and what will be paid afterwards (NCL).

Please correct me if I am wrong.

MikeLittle says

That’s correct!

fahim231 says

helllo i am still a little unclear on the logic of how to calculate the current liabilites and non current liabilities…….can you please explain this

rule3 says

I’m having trouble understanding the TNCA calculation. Can you please indicate what values are being used?

Thanks.

MVS says

Hi Mike,

I have got a question in reference to Reconciliation of Obligations under Finance Leases with the present value of the minimum lease payments

We know that from questions that the lease is for 7 years term. I cant get my head around why is it only 5 years is taken in to account. This is an extract from answers from lecture notes.

Why aren’t we saying that over 5 years are 2 x 3000, hence 6000. Why is it only 1 lease payment shown in payable more than 5 years.

Payable within 1 year 3,000

Payable more than 1 year, less than 5 years 12,000

Payable more than 5 years 3,000

I understand you are busy man but i will really appreciate Mike if you can please help.

MVS says

Sir, please ignore above. I was under the impression that this was from the reconciliation was from beginning of the time (start of lease) which is not the case. This will be dependent on the how many payment period has been lapsed.

Thanks.