For anyone confused why the Right-of-use Asset is 6,486,257 Chris multiplied the Carrying Value of 8,400,000 by 77.21735%, which on the calculator is 6,486,257.4

Is there some calculation error ? If based on Annuity from the table 10year and 5% it will give an amount of 7.722 which multiply, it would not give 7,721,735.

Additionally, if I take $8.4m x 77.22% the amount will only give 6,486,480 ass well.

There are 4 values DR Bank 10million CR Asset 8.4million CR Liability 7,721,735 DR Asset 6,486,257

the DR add up to 16,486,257 , and the CR add up to 16,121,735 the difference of 364,522 is the gain/loss of rights transferred to the buyer Since the Debits are greater than the Credits, that difference was a gain on the SPL, and thus was Credited to SPL. hope that helped

why do we multiple cash flow by annuity factor to derive the present value of the future payment? Shouldn’t it be future payment/ annuity factor so we can know the present value?

Hi every. Hello Chris Thanks for the Lecture. just want a clarification on the value of the total proceeds from the asset($10,000,000), since its the same as the current fair value ($10,000,000) in a situation where the values are different, what do i use, the Fair value or the total proceeds? thanks

Hi! You get 7,721,735 if you calculate PV (CF*Annuity factor) for each payment and then sum these PV up. Year PV 1 952,381 2 907,029 3 863,838 4 822,702 5 783,526 6 746,215 7 710,681 8 676,839 9 644,609 10 613,913 ______________ 7,721,735

Alternatively you can get total Annuity factor by calculating Annuity factor for each payment, averaging them and multiplying by 10: Year Annuity factor 1 0.95 2 0.91 3 0.86 4 0.82 5 0.78 6 0.75 7 0.71 8 0.68 9 0.64 10 0.61 ___________ 7.722

Use a simple annuity formula. PV=R*{1-(1+r)^-n/r}. This will calculate the annuity factor (for constant cashflow/rentals only) and multiply the annuity factor by the Rental. you can calculate it easily

Hi sir, why the balancing figure a become a profit ?? if they appear in the credit side.. can you please tell me the logic behind it so it will be loss if the balance appear in the debit side? ps tell the accounting logic

In the example its $1M payment at end of the lease period that is 10 years so the PV should be 100k * 7.722 ? i am confused as to why do we calculate it this way..

i watched the lecture many times but not able to understand..

please help sir in detail how to get 7.722,i am not understanding because when i try to calculate the formula (1/1+0.05^10)=1,where are you getting 7.722

kamo7293 says

For anyone confused why the Right-of-use Asset is 6,486,257

Chris multiplied the Carrying Value of 8,400,000 by 77.21735%, which on the calculator is 6,486,257.4

phoben says

Is there some calculation error ?

If based on Annuity from the table 10year and 5% it will give an amount of 7.722 which multiply, it would not give 7,721,735.

Additionally, if I take $8.4m x 77.22% the amount will only give 6,486,480 ass well.

phoben says

Where did the balancing figure came about ?

kamo7293 says

There are 4 values

DR Bank 10million

CR Asset 8.4million

CR Liability 7,721,735

DR Asset 6,486,257

the DR add up to 16,486,257 , and the CR add up to 16,121,735

the difference of 364,522 is the gain/loss of rights transferred to the buyer

Since the Debits are greater than the Credits, that difference was a gain on the SPL, and thus was Credited to SPL.

hope that helped

ROMEO1z says

77.22% of 8.4m gave me 6486480

ROMEO1z says

77.22% *8400000 gave me 6486480 not 6486257

Mirza says

Hi, is there a systemtic method to calculate the Gain/Loss instead of being a pluging/balancing figure?

thanks in advance….

Shuka- says

why do we multiple cash flow by annuity factor to derive the present value of the future payment? Shouldn’t it be future payment/ annuity factor so we can know the present value?

tules says

No. An annuity factor takes ALL payments into account over a given period, not just one year.

Esther.2020 says

Hi every. Hello Chris Thanks for the Lecture.

just want a clarification on the value of the total proceeds from the asset($10,000,000), since its the same as the current fair value ($10,000,000)

in a situation where the values are different, what do i use, the Fair value or the total proceeds? thanks

shirleenlai says

Sir, may I know why we use 77.22% * 7721735= 6486257 for right of use asset?

shirleenlai says

opps, is 77.22% * 8.4 million = 6486257, may I get the explanation?

shah369 says

did you understand why he used 77.22% * 8.4 million instead of 77.22% 7,721735

mariakurina says

Because you have to apply retained right rate to previous Carrying value of an asset, which is $8.4 mln.

$7.7 mln is a PV of lease payments, not the previous CV.

It’s specified in a previous lecture…

accountant-@100 says

I love this

mahamba says

hie CHRIS

1,000,000 * 7.722 =7,722,000

how come you got 7,721,735

mariakurina says

Hi! You get 7,721,735 if you calculate PV (CF*Annuity factor) for each payment and then sum these PV up.

Year PV

1 952,381

2 907,029

3 863,838

4 822,702

5 783,526

6 746,215

7 710,681

8 676,839

9 644,609

10 613,913

______________

7,721,735

Alternatively you can get total Annuity factor by calculating Annuity factor for each payment, averaging them and multiplying by 10:

Year Annuity factor

1 0.95

2 0.91

3 0.86

4 0.82

5 0.78

6 0.75

7 0.71

8 0.68

9 0.64

10 0.61

___________

7.722

mariakurina says

anyway both ways are correct and difference is just caused by rounding the average Annuity factor

prernaa says

i didnt get how did we arrive at the figure 7.722

prernaa says

I did the PV calculation in excel for 10 years

but that is a lengthy procedure is there any formula?

NazarBaig says

Use a simple annuity formula. PV=R*{1-(1+r)^-n/r}. This will calculate the annuity factor (for constant cashflow/rentals only) and multiply the annuity factor by the Rental. you can calculate it easily

ashiksajan006 says

I dont understand how the balancing figure got

mariakurina says

Dr 10 + Dr 6.5 = +16.5

Cr 8.4 + Cr 7.7 = -16.1

Difference = 0.4 missing on Credit side to balance the accounting entry

Daakiryare says

thanks we understand

akhilvarghese says

Hi sir,

why the balancing figure a become a profit ?? if they appear in the credit side.. can you please tell me the logic behind it

so it will be loss if the balance appear in the debit side?

ps tell the accounting logic

mariakurina says

Because income is Credit, and expense is Debit.

Retained earnings are Credit. Getting an income eventually credits RE which means increasing RE. Expenses debits RE and reduces it.

This is really a very basic stuff. If you have such questions maybe it would be better to review FA first…

manan66 says

Hi Chris,

In the example its $1M payment at end of the lease period that is 10 years so the PV should be 100k * 7.722 ? i am confused as to why do we calculate it this way..

i watched the lecture many times but not able to understand..

Thanks

Manan

oek1 says

Hey manan,

You should take the cash flow per year when calculating annuity.

allenchanyc says

Hi, I want to know how to compute the AF(1-10)5% = 7.722?

allenchanyc says

I found out how by googling the formula…

kavan says

(1 – (1 + r)^-n) / r

(1 – (1 + 0.05)^-10) / 0.05

samimii says

Thanks

prernaa says

i didnt get it

the formula is (1/1+0.05^10)

mulengakaunda says

please help sir in detail how to get 7.722,i am not understanding because when i try to calculate the formula (1/1+0.05^10)=1,where are you getting 7.722

aarti2407 says

Exactly! This way we get 6.14%!

william9 says

Sorry Chris, possibly a dumb question but please can you explain how you arrive at the balancing figure of 364,522 in the above example? Thanks

william9 says

please ignore. I found it in the notes (:

Gabby says

I don’t get it. Please help. How did u get the balancing figure?

borkarrahul95 says

2278265+6486257-8400000=364522

ananyajoy says

Fairvalue-leaseliability/fairvalue*profit(difference between fair value and carryingvalue).

try using this formula.i got the answer from this formula

pauldaniel2000 says

I think we should use the ordinary annuity table and factors by clicking PVOA Table