PV = 1M x (1 - 0.6139132535)
_______________________
0.05
PV = 1M x (0.3860867465)
?_______________________
? 0.05
PV = 386986.7465/0.05 = 7721734.93
Round up to nearest whole number = 7721735
Hope this helps!
where:
P=Present value of an annuity stream
PMT=Dollar amount of each annuity payment
r=Interest rate (also known as discount rate)
n=Number of periods in which payments will be made
?
K
Kamran·
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
P
phobe·
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.
P
phobe·
Where did the balancing figure came about ?
K
Kamran·
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
M
Mustafa·
Just to be exactly sure how this can be calculated. The amount used as balancing figure is the proportion of gain on the asset not leased back and can be Calculated as (1 - PV of Lease/Sale Price) * Total Gains on Sale. This is simply (1 - 77.22%) * (10m - 8.4m). Note that 77.22% is the proportion of the amount of lease-back to the sales proceeds, so the balance (1-77.22%) is not leased i.e. assumed to be with the Seller-Lessee
(1 - 7,721,735/10,000,000) * 1,600,000 = 364,522
R
Romeo·
77.22% of 8.4m gave me 6486480
R
Romeo·
77.22% *8400000 gave me 6486480 not 6486257
M
Mirza·
Hi, is there a systemtic method to calculate the Gain/Loss instead of being a pluging/balancing figure?
thanks in advance....
M
Mustafa·
Yes!
M
Mustafa·
Yes!
Just to be exactly sure how this can be calculated. The amount used as balancing figure is the proportion of gain on the asset not leased back and can be Calculated as (1 – PV of Lease/Sale Price) * Total Gains on Sale. This is simply (1 – 77.22%) * (10m – 8.4m). Note that 77.22% is the proportion of the amount of lease-back to the sales proceeds, so the balance (1-77.22%) is not leased i.e. assumed to be with the Seller-Lessee
(1 – 7,721,735/10,000,000) * 1,600,000 = 364,522
D
Dingzhou·
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?
D
David·
No. An annuity factor takes ALL payments into account over a given period, not just one year.
E
Esther·
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
S
shirleenlai·
Sir, may I know why we use 77.22% * 7721735= 6486257 for right of use asset?
S
shirleenlai·
opps, is 77.22% * 8.4 million = 6486257, may I get the explanation?
S
Syed·
did you understand why he used 77.22% * 8.4 million instead of 77.22% 7,721735
P
PartyKat·
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...
J
John·
I love this
A
alex mahamba kasonkho·
hie CHRIS
1,000,000 * 7.722 =7,722,000
how come you got 7,721,735
P
PartyKat·
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
P
PartyKat·
anyway both ways are correct and difference is just caused by rounding the average Annuity factor
P
prerna·
i didnt get how did we arrive at the figure 7.722
P
prerna·
I did the PV calculation in excel for 10 years
but that is a lengthy procedure is there any formula?
N
NB·
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
A
ashiksajan006·
I dont understand how the balancing figure got
P
PartyKat·
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
A
Abfullahi Mohamud Aden·
thanks we understand
A
akhil·
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
P
PartyKat·
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...
M
manan·
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
O
oek1·
Hey manan,
You should take the cash flow per year when calculating annuity.
A
Allen·
Hi, I want to know how to compute the AF(1-10)5% = 7.722?
A
Allen·
I found out how by googling the formula...
K
kavan·
(1 - (1 + r)^-n) / r
(1 - (1 + 0.05)^-10) / 0.05
S
samimii·
Thanks
P
prerna·
i didnt get it
the formula is (1/1+0.05^10)
M
mulengakaunda·
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
A
aarti·
Exactly! This way we get 6.14%!
B
Billy·
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
B
Billy·
please ignore. I found it in the notes (:
G
Gabby·
I don't get it. Please help. How did u get the balancing figure?
B
borkarrahul95·
2278265+6486257-8400000=364522
A
ananyajoy·
Fairvalue-leaseliability/fairvalue*profit(difference between fair value and carryingvalue).
try using this formula.i got the answer from this formula
P
Paul Daniel·
I think we should use the ordinary annuity table and factors by clicking PVOA Table
P= PMT × (1?(1+r) -n
__________________
r
PV = 1M x (1 - (1 + 0.05)-10
____________________
0.05
PV = 1M x (1 - 0.6139132535)
_______________________
0.05
PV = 1M x (0.3860867465)
?_______________________
? 0.05
PV = 386986.7465/0.05 = 7721734.93
Round up to nearest whole number = 7721735
Hope this helps!
where:
P=Present value of an annuity stream
PMT=Dollar amount of each annuity payment
r=Interest rate (also known as discount rate)
n=Number of periods in which payments will be made
?
Chris multiplied the Carrying Value of 8,400,000 by 77.21735%, which on the calculator is 6,486,257.4
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.
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
(1 - 7,721,735/10,000,000) * 1,600,000 = 364,522
thanks in advance....
Just to be exactly sure how this can be calculated. The amount used as balancing figure is the proportion of gain on the asset not leased back and can be Calculated as (1 – PV of Lease/Sale Price) * Total Gains on Sale. This is simply (1 – 77.22%) * (10m – 8.4m). Note that 77.22% is the proportion of the amount of lease-back to the sales proceeds, so the balance (1-77.22%) is not leased i.e. assumed to be with the Seller-Lessee
(1 – 7,721,735/10,000,000) * 1,600,000 = 364,522
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
$7.7 mln is a PV of lease payments, not the previous CV.
It's specified in a previous lecture...
1,000,000 * 7.722 =7,722,000
how come you got 7,721,735
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
but that is a lengthy procedure is there any formula?
Cr 8.4 + Cr 7.7 = -16.1
Difference = 0.4 missing on Credit side to balance the accounting entry
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
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...
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
You should take the cash flow per year when calculating annuity.
(1 - (1 + 0.05)^-10) / 0.05
the formula is (1/1+0.05^10)
try using this formula.i got the answer from this formula