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Question number 163.
What is the amount that should be shown under the non- current liabilities at 30 September 2017 in respect of this plant ?
a) $ 175,000
b) $ 262,500
c) $ 250,000
d) $ 100,000answer $
Cost 1.4*7 350,000
1.4*7 payment. 100,000
Balance 1.4*7 250,000Interest to
30.9*7 (250,000*10%*6/12). 12,500
Balance 30.9*7. 262,500Interest to
1.4*8 (250,000*10%*6/12). 12,500
1.4* 8 payment 100,000
Capital balance due 30.9*8. 175,000Sir my question is why dont we consider interest from 1.4.2018 to 30.9.18 to calculate non current liablities as at 30.9.17?
You assume (wrongly) that I have a copy of the BPP material
If you want an explanation you’re going to have to type out the question, sorry
At a guess, I assume that the 6 months’ interest to September 2018 is included and shown separately as a current liability
What does the question ask for? Current liabilities? Or capital amount outstanding?
On 1st April 2017, Fino increased the operating capacity of its plant. Due to a lack of liquid funds it was unable to buy the required plant which had a cost of $350,000. On the recommendation of the finance director, Fino entered into an agreement to lease the plant from the manufacturer. The lease required four annual payments in advance of $100,000 each commencing in 1 April 2017. The rate of interest implicit in the lease is 10%. The plant would have a useful life of four years and would be scrapped at the end of this period. The finance director believes the lease to be an operating lease.
What is the amount that should be shown under the non- current liabilities at 30 September 2017 in respect of this plant ?a) $ 175,000
b) $ 262,500
c) $ 250,000
d) $ 100,000answer $
Cost 1.4*7 350,000
1.4*7 payment. 100,000
Balance 1.4*7 250,000Interest to
30.9*7 (250,000*10%*6/12). 12,500
Balance 30.9*7. 262,500Interest to
1.4*8 (250,000*10%*6/12). 12,500
1.4* 8 payment 100,000
Capital balance due 30.9*8. 175,000My doubt.
The question asks for non current liabilities at 30 sep 2017.
The lease was entered into at april 2017 and the question asks for non current liabilities at 30 sep 2017 ie 6 months.. but if the question asked for non current liabilities at 1.4.2018.. the answer would still be 175000? Why dont we deduct interest from 1.4.2018 to 30.9.2018?Because when we are looking at long term liabilities as at a particular date we consider ONLY the capital amount outstanding
Theoretically the interest is not an obligation that is unavoidable – theoretically the lessee could approach the lessor on 30 September and say “I’ve won the lottery – can I pay you the amount outstanding?” and that would not include interest
If that conversation took place on 31 January, then there would be an element of accrued interest since the previous 1 October.
But as at the year end, the only determined obligation is the amount of capital
OK?
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