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Question: hobble
hobble is a famous football club playing soccer in the top division in a large european nation. it has been strugglking in recent seasons and appears likely to be demoted from the top division at the end of the current season on 31st may. however the accounting year end is two months before that date on 31st march. the following are issues realting to the financial statements for the year ended 31st march.
A) STAR
The club owns the right to a star goal scorer. the club paid 20million to purchase the player and this gives hobble the exclusive rights to play the star. the contract is for five years and started at the current accounting year start.
the palyer has put in a transfer request and seems certain to be sold at the end of the season, probably some time in june shortly after the year end. however because the player is so important to the club he will play every game until the end of the season.
the star has been the only good thing in a dreadful season and thought to be worth 60million based on his prolific goal scoring and offers from other clubs. so hobble propose to carry the star at 60million in current assets.🙂 BOND
To help with the cashflow the company has issued a 100million convertible bond. this bond was iisued at teh start of the year at face value and will be redeemed at face value or converted into equity in four yeas from issue. the market intrest rate for an equivelent bond with no option was 8%.
the bond was secured on the stadium.
(7marks)C) STADIUM
The stadium has an opening carrying value of 24million and a remianing life of 12 years, from the yaer start. the yaer end value is estimated at 40million.
The club sell the stadium to their bank for 30million at the year end. the contract allows hobble to continue to use the stadium and continues to require hobble to maintain the stadium for the next 11years. at the end of the 14years the stadium is transferred back to hobble at a complusory repurchase price of 30million.
In exchange for the right of occupancy hobble will pay 2.4million per annum. this is calculated to be 8% of 30million.
hobble propose to recognise a profit on disposal of 6million.
required: discuss the effect of the above issues upon the current financial statements of hobble: (show calculations as appropriate
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