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  2. Hi,

    I don’t understand why in Example 5 – Dovile, 915 is being credited if it’s yet to be paid.
    Also what’s the difference in the T-account you’ve completed in the video and the T-account in the answers at the back of the notes?

    • “I don’t understand why in Example 5 – Dovile, 915 is being credited if it’s yet to be paid”

      How else do you show a liability?

      There shouldn’t be any difference!

      I’ve just checked the video … there is no difference!

      On the debit side in the lecture I have added two figures together to arrive at 1,431 and on the credit side I have shown two separate figures in the lecture that I have combined in the answers

      Surely that’s no big deal, is it?

  3. Hi Mike, the other thread is locked, but I just wanted to say thank you for your time & help. I sent an email to the publisher and hopefully they will get back to me soon.
    Cheers, Jenny

  4. Hi, I am working my way through the statement of cash flows for my upcoming exam and came across the following question and do not understand the quoted answer.
    Could you help me, please? Thanks a million!

    The following balances appear in the statement of financial position of Elba Ltd.

    2012: Non-current assets at cost $1,250,000; Revaluation reserve $240,000

    2013: Non-current assets at cost $1,096,000; Revaluation reserve $140,000

    During the year non-current assets with a cost of $150,000 were disposed of. What figure would appear in the statement of cash flows for purchases of non-current assets?

    Select one:
    a. $104,000
    b. $304,000
    c. $150,000
    d. $204,000

    • This post should be on the Ask ACCA Tutor forum!

      Repost it there and I’ll get straight back to you but, before you do, please check your figures and also check that you have given me full information

      • Thanks a lot for the quick response. I have posted it in the Ask ACCA Tutor forum.
        I have literally copy/pasted the question, so this is the all the information I have.

      • OK, I’ve just replied to your post on Ask ACCA Tutor

        Now I’m relying on you giving me the suggested solution so that I may try to figure out how it has been arrived at!

  5. 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 it means that she should account for the +1800 interest in the Income Statement as well, so we should add 1800 to interest charged: 217000+1800=218800?

    • The double entry that Agnes has put through is:

      Dr Finance Lease Obligation Account $9,000
      Cr Cash $9,000

      whereas the correct entry should have been:

      Dr Finance Lease Obligation Account $7,200
      Dr Finance Lease Interest Account $1,800
      Cr Cash $9,000

      To get from the bad one to the good one, we need to:

      Dr Finance Lease Interest Account $1,800
      Cr Finance Lease Obligation Account $1,800

      so, in answer to your question, “should we add 1800 to interest charged”, the answer is “Yes”

  6. Dear Mike,

    First of all, Thank you for all the videos!
    Secondly, please tell if I think one, so you mean, if there was interim paid dividends, then the dividends that were payable before should already have been paid, yes? Because the entity cant pay new interim (or whatever) dividends before paying its past dividends. Is my logic right?

      • Your logic is perfect

        Where there is a proposed dividend brought forward as a liability and you are also told that the entity paid an interim dividend, then the entity must have paid not just that interim dividend but also the proposed dividend liability brought forward from last year

  7. Hi Mike, do we calculate the dividends paid this way only when the company pays an INTERIM dividend during the year? If a company pays a final dividend (as reflected in the SPL), we’ll use the usual b/d SPL C/d cash way, right?

    • No, dividends don’t work the same as interest paid or received

      However, the only real difference is that dividends don’t appear in the statement of profit or loss

      Rather you’d have to find the dividends for the year within the statement of changes in equity

      so the mantra needs a slight adaptation to …

      Brought forward

      Statement of changes in equity

      Carried forward

      Cash

      It doesn’t have the same beat to it but the message is the same … maybe it would sound better if you were to rap it

  11. Good day.

    Exercise 5.

    How do you actually know that 915 is entirely made of final dividends? What if interim dividends declared were 700 (and only got 600 paid) ? It does not have any impact on DIV paid figure of 1431, but still.

    Thank you.

    • e.g. Is it possible for the company to pay dividends in two installments in two different years (second installment just prior to future dividend declaration)

      Hope you understand what I mean 🙂

    • Are you asking “700 declared but only 600 actually paid”?

      It won’t happen! If it did (and it won’t!) the directors would be removed from office quicker than you could say “Jack Robinson”

      Is it possible to pay the 2013 part in 2013 and part in 2014?

      That’s exactly what does happen in practice! Directors will authorise and pay a dividend part way through the year based on the half year results (the interim dividend). That’s a part payment on account of the total dividend for the year and will be declared / paid around August (December year end company)

      Then, probably around February, after the directors have a good idea of the company’s overall performance for the full year, the board will declare the final dividend. This figure will be shown as a note in the financial statements and will be presented to the members in the annual general meeting asking for the meeting’ approval.

      If the meeting DOES approve, that figure will be paid sometime, say, around May

      All clear now?

      • Yes, thank you. Dividends to ordinary shareholders are always paid in full. That is clear now.

        What about preference shareholders? (dividends in arrears). Can a company pay dividends to selected preference shareholders (say those who are more important to your business) and continue accumulating unpaid dividends (e.g. in arrears) for remaining ones?

  12. hello sir, one thing that confuses me is that why is the CF figure carried forward on the credit side in the PPE account? wouldn’t crediting a figure in a asset account decrease the asset account?

      • It’s carried down from ABOVE the line on the credit side to BELOW the line on the debit side.

        Below the line figures are those that appear on the statement of financial position and, because it’s on the debit side, it’s an asset.

        The carry down amount is merely a summary of all the other figures within that account – its telling you that the amounts on the debit side exceed the amounts on the credit side by that carry down figure

        Better?

      • oh yeah i dont know why but I keep getting confused regarding these CF figures and when i do i feel like iv’e got to ask just to make sure i know every detail. But I think I understand what you are saying, your basically saying that the carrying down figure is actually the balancing figure which is moved to the debit site below the total lines? is this correct sir?

      • That’s absolutely right!

        Just keep practicing – it’ll come clearer the more you practice

        And listen to John Moffat’s F3 video lectures

      • Ok thank you. Just one thing sir, how would you get the 220 cash figure if you didn’t know the CF figure of 1320?
        What I mean is how would you get this 220 cash figure by just using T accounts? and which figure would you put down for this years balance sheet?

        thanks again sir, I really appreciate the help and support.

  13. 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?

    • 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

      Ok?

      • 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?”

        Ok?

  14. 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

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

    Student answers quietly in the background (“12”)

    LEGENDARY MR MOFFAT: “12?!!! GOOD LORD!!”

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

  18. 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 (bf.IS.cf.cash) .. how do we know that we have to classify 915 as I/S obligation? What is the key indicator?

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