I'd appreciate if anyone could help me with the following questions on this?
Depreciation
One of the notes in the question is in regard to a leased asset. It says that the depreciation should be calculated on a straight line basis of the life of the lease. In this case the lease is 20 years giving a charge of $4M per year. Lower down there are other plant and equipment and these are charged on a 20% reducing balance. In the answer it appears that the reducing balance method has also been used for the leased asset, contrary to the question. What's up with that?
Retained Earnings
As part of the question, the company had incorrectly calculated a profit of $45M on the sale of a building as they had used the cost of the building instead of its carrying value. The true profit was $15M. In the answer, the calculation for the retained earnings for the SOFP adds the difference of $30M. Why? Surely the profit for the period plus the $15M should be added to retained earnings brought forward?
Lease Obligations
I follow the workings down to the total creditor balance of $67.2M I don't understand how the split of $20M within a year and $47.2M after one year have come about though. The original loan was $80M with a $20M payment in advance. But that has already been paid?
Tax Charge
The tax charge given in the question is $15M. The trial balance also includes a $2.2M over provision brought forward. In the answer the SOFP lists the tax charge under current liabilities as $15M and not $12.8M. Is that correct?
Depreciation
One of the notes in the question is in regard to a leased asset. It says that the depreciation should be calculated on a straight line basis of the life of the lease. In this case the lease is 20 years giving a charge of $4M per year. Lower down there are other plant and equipment and these are charged on a 20% reducing balance. In the answer it appears that the reducing balance method has also been used for the leased asset, contrary to the question. What's up with that?
Retained Earnings
As part of the question, the company had incorrectly calculated a profit of $45M on the sale of a building as they had used the cost of the building instead of its carrying value. The true profit was $15M. In the answer, the calculation for the retained earnings for the SOFP adds the difference of $30M. Why? Surely the profit for the period plus the $15M should be added to retained earnings brought forward?
Lease Obligations
I follow the workings down to the total creditor balance of $67.2M I don't understand how the split of $20M within a year and $47.2M after one year have come about though. The original loan was $80M with a $20M payment in advance. But that has already been paid?
Tax Charge
The tax charge given in the question is $15M. The trial balance also includes a $2.2M over provision brought forward. In the answer the SOFP lists the tax charge under current liabilities as $15M and not $12.8M. Is that correct?