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u r welcome!
yes…PV is correct.:)
finance charge will be the other way round.
at the end of yr 1 – 8%*92593 =7407
at the end fo yr 2 – 8%*(92593 + 7407) =8000PV of deferred consideration is what we should have paid outright, ie, 100,000 (here). If we are not paying it now, then the interest should be charged on this amount…right?
The agreement is to pay 108,000 on a later date. This includes the interest as well. We cannot include the interest in the accounts before it is due. So, we take out the interest from the total amount due.Is that logical?:)
If it was not an error, but revalued in due course…
here, it happens to be an impairment as the carrying value in the records is in excess of their recoverable amount.
the impairment loss should be immediately recognised in the income statement, unless the asset was previously revalued.
-If the asset was revalued by 500,000 earlier, then this loss will be deducted from the revaluation reserve.
-If the asset was revalued by 400,000 earlier & now the loss is 500,000; then only 400,000 will be deducted from the revaluation reserve and the remaining 100,000 will be recognised in Income Statement as an impairment loss.Hope that helps
Cost of capital is effectively an interest.
The fair value of any deferred consideration is calculated by discounting the amounts payable to present value(PV) at acquisition. (i.e, taking into account the time value of money)
PV of deferred consideration is calculated as follows:
$108m * [1 / {(1+0.08)^1} = $100m
The formula is 1 / {(1+r)^n}
where, r is the cost of capital
n is the number of years the consideration is deferredat the end of every year, the discount is to be unwounded; effectively interest on this $100m.
in this qn, it is 8%* 100m = 8m.
this is shown in the income statement as finance cost & also added to the deferred liability.Hope that helps
Accounting treatment of fundamental errors:
-Adjust the opening balance of retained earnings, and
-Restate comparative information
(Fundamental Errors, Chapter 5, Page 24, Opentuition Course Notes)Deferred consideration
On 1 April 2011, Pyramid acquired 80% of Square’s equity shares…..
…a cash payment of 88 cents per acquired share, deferred until 1 April 2012.
Pyramid’s cost of capital is 10% per annum.Square’s equity shares = 10,000
deferred consideration = $0.88 * (80%*10,000) * (1/{1+0.10}^1)
= 80% * 10,000 * 0.88/1.1
when the consideration is deferred, we need to discount it to present value. this is done by the last part of the calculation above.
the formula is 1 / [(1+r)^n]
where, r is the cost of capital
n is the number of years the consideration is deferred.in this qn, r is 10% = 0.10
n is 1 year.Hope that helps
Thankz to caoqin1981
learnt a lot frm ur doubts too…Thankz to all others who helped me.
Congrats to allover-provision is subtracted when calculating tax charge for the IS. only tax for the year is shown under current liabilities.
According to IAS 37, If a liability is probable or virtually certain, it should be provided for in the financial statements
https://www.iasb.org/NR/rdonlyres/94C8F2F5-FC68-43E5-86AC-211C9B701FE5/0/IAS37.pdf
“as shown in other comprehensive income”…..it is already accounted. If we add again, it will be double counting.
it s 1/(1.1)^2 = 1/1.21
the formula is 1/(1+r)^n
where,
r is the cost of capital & n is the number of years.
here, the payment will be after 2 yrs. so, n=2.revenue and costs of a construction contract should be recognised according to the stage of completion of the contract……..IAS 11
% of completion given in the qn – 30%.
Total revenue = 40,000 (given)
Total costs = 32,000 (see below)in the IS
revenue = 30% * 40,000 = 12,000
cost of sale = 30% * 32,000 = 9,600total costs
costs to date = 8,000(given) + plant depn (12,000 – 3,000)*(6/18)
=11,000
further costs to complete =15,000(given) + plant depn (12,000 – 3,000)*(12/18)
=21,000
total costs = 11,000 + 21,000 = 32,000For the joint stock company, paying dividends is not an expense; rather, it is the division of after tax profits among shareholders….(from Wikipedia)
i) interest on preference shares = 10% * $5m = $0.5m
profit 1m – interest 0.5m = $0.5 m for equity shareholders.
Earnings per share
preference shares – 0.5/5 = $0.10 = 10c
equity shares – 0.5/5 = 10cii) interest on pref. shares = 10% * $5m = 0.5m
profit 1.3m – interest 0.5m = 0.8m for equity shareholders.
EPS
preference shares – 0.5/5 = $0.10 = 10c
equity shares – 0.8/5 = 16ciii) interest on pref. shares = 10% * $5m = 0.5m = $500,000
profit $700,000 – interest $500,000 = $200,000 for equity shareholders
EPS
preference shares -$500,000/ $5,000,000 = 10c
equity shares – $200,000 / $5,000,000 = 4cImpairment of subsidiary is charged to the Consolidated Income Statement as a separate item, after the finance costs.
Impairment of associate is deducted from the associate’s post-acquisition profit. Parent’s share of the adjusted post-acquisition profit is taken to the CIS.
(in $000)
1 Oct 20X0 – loan issued = $30,000
1st yr
effective interest for the yr = 10% * $30,000 = 3,000
interest paid = 8% * 30,000 = 2,400
Carrying value as at 1 Oct 20X1 = 30,000 + 3,000 – 2,400 =30,600 (given in trial balance)2nd yr
effective interest for the yr = 10% * 30,600 = 3,060
interest paid (given) = 2,400
Carrying value as at 1 Oct 20X2 = 30,600 + 3,060 – 2,400 = 31,260I/S finance cost for the yr ended 30 Sept 20X2 = 3,060
SFP 8% loan note = 31,260Hope that helps
I think that 30,000 is related to the information given in part (c) of the question.
