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Dear Mr John,
Thank you for your excellent explanation.
Warmest regards,
Eric LamDear Mr John,
Thank you for your excellent explanation.
In that case, what are the perfect market conditions? Please advice.
Thank you very much.
Warmest regards,
Eric LamDear Mr John,
Thank you for your excellent explanation.
Warmest regards,
Eric LamI watched your lectures and learned the rules that minimum transfer price is marginal cost + any lost contribution. My question is can this rule be applied to the above question, i.e. a) actual cost is the lowest cost among all of them. Please advice. Thank you.
Dear Mr John,
In that case, the suitable transfer price must be based the lowest cost of all, the actual cost more close to marginal cost, so performance measurement, divisional autonomy and company profit is maximized. Please advice and thank you very much.
Warmest regards,
Eric LamDear Mr John,
Thank you for your clear explanation.
However, B may feel unfair being charge with higher cost as this will pull down its division profit margin. Overall company profit suffered if B stop production. If this is the case, how to prevent this from happening. Please advice with your explanation.
Thank you.
Warmest regards,
Eric LamDear Mr. John,
Thank you for the clear explanation and well noted.
God blessed you and family abundantly.
Warmest regards,
Eric LamHi Sir,
Good day. Thank you for the clear explanation.
Deposit, whether refundable or not, is included in right of use asset but excluded from the initial lease liability . Am I correct with that understanding?
Thank you very much Sir and God blessed you.
Warmest Regards,
Eric LamHi Sir,
Good morning. Please kindly reply to my last question. Thank you very much.
Warmest Regards,
Eric LamHi Sir,
Good day. Thank you for your reply. However, the model answer given is excluding the deposit as follows
Right of use asset calculation 478000
Less non-refundable deposit on 1.4.×7 100000
Lease liability 378000
Interest accrued 1.4.×7-31.3.×8(378000×10%) 37800
Lease liability as at 31.3.×8 415800
Payment made 1.4×8 (100000)
Interest accrued 1.4.×8-31.3.×9 (315800×10%) 31580
Lease liability as at 31.3.×9 347380
Current liabilities as at 31.3.×9 100000
Non-current liabilities as at 31.3.×9 247380Please advice and thank you.
Warmest Regards,
Eric LamHi Sir,
Thank you for your reply.
1) Now I understand that the 700,000 added to the PV is the first advance lease payment out of the five payments and not the deposit originally thought. Deposit is added to Right-of-use assets only. Am I right?
2) This is part of Scenario question which related to Fino Co incurred initial direct cost of $20,000 and received lease incentives from the manufacturer totalling $7,000. After four years it will have to dismantle the plant at an estimated (discounted) cost of $15,000. What is the measurement of the right-of-use as at 1 April 2017? Answer is $478000=350000+20000+15000+100000-7000. As mentioned in your last reply that 350000 is correct if the deposit is included But PV should be 248700 (100,000*2.487) if the deposit is not included as stated in 1) calculation above. Why the deposit is included in this case. Please clarify and explain the confusion here. Thanks.
Warmest Regards,
Eric LAMHi Sir,
Good day. Thank you for your valuable sharing. I hereby include two questions whereby first question non-refundable deposit is added to lease liability and the other not included for your persual.
1) On 1 Jan 2016 Fellini Co hired a machine under a five year lease. A non-refundable deposit if $700,000 was payable on 1 Jan 20×6. The present value of the future lease payment was $2,426,000. The remaining 4 installments of $700,000 are payable annually in advance with the first payment made on 1 Jan 20×6. The interest rate implicit in the lease is 6%. What amount will appear under non-current liabilities in respect of this lease in the statement of financial position of Fellini Co at 31 Dec 20×6? Answer is 1872000 which is arrived at with non-refundable deposit included in the calculation.
2) On 1April 20×7, Fino Co increased the operating capacity of its plant. On the recommendation of the finance director, Fino Co entered into an agreement to lease the plant from the manufacturer. The present value of the future payments is $350,000. The lease requires three annual payments in advance of $100,000 each, commencing on 1April 20×8. The rate of interest implicit in the lease is 10%. The lease does not transfer ownership of the plant to Fino Co by the end of the lease term and there is no purchase option available. A non-refundable deposit of $100,000 is payable on 1 April 20×7. What is the amount that should be shown under non-current liabilities at 31 March 20×9 in respect of this plant? Answer is 247380 where the deposit is not included in the calculation.
Please advice which is correct in the treatment of non-refundable deposit.
Thank you very much.
Warmest Regards,
Eric LamSelf study for F5 and F7 with textbook and revision kit but fail. Pass F9 with marks 62 on first attempt with help from watching Mr. John lectures while reading notes. By practicing Kaplan revision kit and mock exams one month before actual exam and reading text book to revise my understanding on the subject. Thank you Mr. John for the excellent work done in helping me to pass.
Dear Mr John,
Thank you for the clear explanation.
If UK interest rates raise, its currency is subjected to depreciation according to IRPT. Will UK investors suffer any exchange loss when converted back to pound? Why?
Thank you for your explanation.
