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June 9, 2012 at 5:20 pm #53272Anonymous
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I’d appreciate if anyone could help me with the following questions on this?
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?
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?
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?
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?June 10, 2012 at 3:33 pm #99846Mahmudul Hasan
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If question mention that the depreciation of leased asset charged at straight line then you have to calculate the depreciation on straight line method otherwise you have to charge it the existing method of the organisation
Lease obligation should be split between Non current and current Liabilities
Working is as follows
Year. Opening. Paid. Outstanding. Interest. Closing
1. $80m. ($20m.) $60m. $7.2. $67. 2
2. $67. 2. ($20m). $47.2m( non curr. Liabilities)in SFP
Difference $20m(67.2-47.2) is Curr. Liabilities is SFP as accrued interest 7.2m and finance lease obligation 12.8m
I/s Finance cost is 7.2
Tax charge is correct
$15m is shown in SFP under curr. Liabilities as a current taxJune 10, 2012 at 6:00 pm #99847Anonymous
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So the answer in the book is wrong for depreciation? They accidentally used reducing balance in the answer when the question said straight line.
If the tax charge is correct at $15M, what has happened to the $2.2M over provision brought forward? It has completely disappeared in the answer.June 11, 2012 at 7:46 am #99848Najiya
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over-provision is subtracted when calculating tax charge for the IS. only tax for the year is shown under current liabilities.
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