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HI Stephen,
Thank you for your reply. I do understand that the accounting entry for contributions paid into the pension scheme by the employer Ecoma Co, is Cr Bank $10m, Dr Net Pension Obligation $10m.So, as the question stated that the “These payments had been recorded in the financial statements”, my impression was that the debit of $10m was already reflected in the closing net pension obligation of $78, and hence did not need to be shown when reconciling the opening and closing net pension obligations?
Liam
Hello,
May i offer a solution.Expenditure from 1 March to 30 June will be capitalised as development expenditure being $40,000 * 4 mths = $160,000
Expenditure from 1 January to 28 Feb will be classified as research and will be expensed to profit or loss – $40,000 * 2 mths = $80,000
Amortisation of the capitalised development expenditure will commence from 1 July , as the product went into immediate production – hence amortisation from 1 July to 30 September will be expensed to profit or loss as follows: $160,000 years /5 * 3*12 = $8,000
Therefore the total expense to profit or loss for the year ended 30 September 20X4 will be $88,000….
Is this correct?
Hello,
Thank you for prompt reply. I accept your point that we dont always swap assets of equal value.
But, if we assume that the scenario i gave in my original email did lack commercial substance, then the point i am interested in is, recording the received asset (i.e. Asset Beta) at the carrying value of the asset given up (i..e Asset Alpha)…….
Is it correct for Entity A to record Asset Beta at a value of £1m, being the carrying value of Asset Alpha, before it was exchanged….are we not overstating the carrying value of Asset Beta?? (given that it was being carried at £0.2m prior to the exchange occuring)
Thanks
LiamI think so Mike….my main query was if i was accounting for issue costs correctly in relation to financial assets/liabilities…So i take it that i am by your response ….in that the effective interest rate will include an element for the issue costs…Is this your understanding as well??
Thanks
LiamHI Mike,
An entertaining and informative reply from you….thanks again
P.s. am also a big fan of the “Royle Family” and especially the performances of your son, Ralph
Thanks
LiamHi Mike,
Yep i think i have it now….to summarise, credit notes issued as part of normal trading activities say in January 2015 (using a 31 December 2014 Year End) have no impact on the 2014 numbers
However, where credit notes issued are part of a Window Dressing exercise (i.e. artifically inflate 2014 Revenue and then cancel some of it in early 2015 via credit notes) , this is a non adjusting event per IAS 10…hmmm……but , sorry , if a credit note is issued in early January 2015, which essentially reverses a “fake sale” recorded in the 2014 accounts, is the post year end issuance of the credit note an event which provides additional evidence of conditions existing at the reporting date…i.e. that the sale was in fact a fake , and so it should not be recorded in the 2014 accounts??
Hi Mike,
Thanks for the very prompt reply….
Just some clarifications….when you say “window dressing”, do you mean that the client waited until early 2015 to recognise credit notes, so as not to have to reduce 2014 Revenue??
Also, under normal trading conditions , where sales are made and then are after the year end goods are returned and a credit note is given, does the issue of credit notes post year end have any impact on pre year end income recorded…??
Thanks Mike
Liam
Sorry MIke…the heading on my query should read “Pre Year End Sales” not “Post”
Liam
Hi Mike,
Thanks for the reply and apologies for my tardy reply
So, are you saying that, the lessor, will set the rental payments at such a level over the “operating lease” term that, they (the rental payments and their present value) will equal all or substantially of the leased asset fair value at the inception of the lease – hence this is what will make it a finance lease??
Liam
Thanks Mike – that makes it clearer now
And, one final question for you – If a loan note issued by the parent as part of acquiring a sub is a promise to to pay an amount of money in the future, then should the loan note be discounted to its present value?? This does not appear to be done in the Consolidation Questions on F7……..
Thanks
Liam
Hi Mike,
Thanks for the prompt reply
When you say ” the loan note issued as part of the purchase consideration is given to the former holders of the shares in the subsidiary which the parent company is now buying”, what exactly are the former holders of the shares in the sub receiving?? As in what exactly does the loan note represent??
Thanks
Liam
Hi Mike,
Thanks for reply
So a difference between Sale Value and Carrying Value in the context of a sale and leaseback gives rise to a difference on disposal of the asset which is treated as a deferred gain
If i am interpreting IAS 17 correctly, a sale and leaseback is a financing transaction and so any “profit” on disposal is deferred and amortised over the lease term – in that a “sale” is not truly recognised by IAS 17 – in the sense of not recognising the gain “immediately” – is this a correct interpretation?? Below is the wording from IAS 17 which i am basing my interpretation on
– 60 If the leaseback is a finance lease, the transaction is a means whereby the lessor provides finance to the lessee, with the asset as security. For this reason it is not appropriate to regard an excess of sales proceeds over the carrying amount as income. Such excess is deferred and amortised over the lease term.
Thanks
Liam
Thanks. Also, when accounting for an impairment under IAS 36, does the Credit go to the Asset Cost or the Accumulated Depreciation of the Impaired asset???
