BPP online MOCK 2 question no. 25

Hi, Sorry, but I don't have access to the BPP online mock. If you post it on here then I can try and answer it. Thanks

Question:- Elvis Co. is a relatively new business, incorporated on 1 oct 20x5. u are currently reviewing the 30 sept 20x7 year end result and the following two issues have arisen: Issue1: Elvis Co. required additional finance to help launch a new product. On 1 Oct 20x6 they issued a 6% $60 million convertible loan note at par. Interest is playable annually in arrears on 30 sept each year. the loan note is redeemable at par or convertible into equity shares at the option of the loan note holders on 20 sept 10x9. the interest on an equivalent loan note without the conversion rights would be 9% per annum. the present values of $1 receivable at the end of each year, based on discount rates of 6% and 9% are: 6% end of year 1 = 0.94 end of year 2 = 0.89 end of year 3 = 0.84 9% end of year 1 = 0.92 end of year 2 = 0.84 end of year 3 = 0.77 Issue 2: On 1 April 20x7 elvis co entered into an agreement for the right to use two specified items of equipment for 4 years from Zack co. the two items of the equipment have a fair value of $340000 in total. Zack Co. is responsible for the repairs and maintenance and must provide a temporary replacement in the equipment needs repairing or servicing Elvis Co. keeps the equipment on their premises and allocates work to the machines as part of their normal operations. there is no right to purchase the equipment at the end of the agreement. the equipment has an estimated useful life of 5 years. The terms of the agreement include four equal installments of $100,000 payable in advance on 1 April each year. After the initial payment of $100,000 the present value of the remaining installments is $240,000. What is the value of the non-current lease liability at the 30 Sept 20x7? correct answer according to BPP:- answer is $ 168,800. Liablility at 1 april 20x7 = 240000 Interest($240000* 12%*6/12) = 14400 balance at 30 sept 20x7 = 254400 interest(240000*12%*6/12)=14400 payment = (100000) capital balance due on 30 sept 20x8 = $168,800

hi I have missed one paragraph in the question. This is the last paragraph. assuming the agreement is a lease, the following additional information is relevant:- initial direct cost associated with the lease were $15,000 and Zack co gave Elvis co. an incentive of $5000 to lease two machines. Elvis Co's operations director was in charge of negotiating the contract. He billed 20 hours at $50 per hour to the contract. The administration staff also billed time to the contract, which amounted to $1000. The rate of interest implicit in the lease in 12%.

Hi, The value of the liability at the reporting date is the $254,400 and then to calculate the non-current element of the liability then we look at the final payment of the following year and the number immediately to the right is the non-current element. So they carry on the lease liability table in order to help calculate the non-current liability. Thanks

hi Chris, Thank you for your reply. I understand it now. Regards