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hello sir mike,
i don’t seem to understand how the depreciation was calculated for example 2.why are you dividing 16000 by 7?? why 7???
and also sir,can you please explain how to work out the net figures for the reconciliation of minimum lease payments and present value.thank you so muchHi, it’s 7 because there are 14 installments payable half-yearly
To calculate the reconciliation, you need to apply discounting principles. Are you ok with the concept of dcf or do you needed a quick reminder?
oh i my so sorry mr.little i checked on your reply so late.thanks for the swift response.well i have tried to use discounting like you said but i am still not getting the answers in the book.i would be glad if you give me a quick reminder.and also michael,can you please tell me how the finance lease interest not yet accrued happens to be 4705 in the case of Giedrius and Giedruola alike? because i got a different figure for Giedruola which is 5540 and that was the same formula i used for Giedrius and i got the 4705 so i was hoping the figure for Giedruola in the question is wrong.
hoping to hear from you soonHi Albert
With a cost of capital of 10% a payment of $3,000 in one year’s time is the equivalent of a payment of $2, 727 today (Heaven knows why I have written $2,790 in the answers!)
For and Giedruola they have both paid 2 installments and therefore have 2 to pay within 12 months, 8 to pay between 1 year and 5 years and 2 more to pay beyond 5 years.
In applying dcf, we assume that payments take place at the end of the year – a bit silly in the case of Giedruoala who is due to pay her next installment “tomorrow”
I’ll have another look at $2,790 and try to work out why I have written that and not the “accurate” figure of $2,727. Maybe I’ll change it for the next season
Are you ok now?
hello sweet mike,
so its 2,727 and i am not mistaken at all.i’m very happy now cos i was sad i couldn’t work out simple discounting i felt i had to drop the entire program.thanks
but wait a minute,does that mean that your answer to the payables more than a year but less than 5 year net balance is 8196 not 8,793??? and the payables more than 5 years couldn’t possibly be the current liability for the period 1712?? and sweet mike i’m beginning to think that the finance interest not yet accrued is a balancing figure or maybe not cos i remember solving that by deducting the fv of the lease from the total instalments made.but now when i do that i don’t get that 4705.
please can you give me a crystal clear understanding of how that reconciliation works.please big mike.
No, my mistake for putting $2,790. WHY?? No idea
Yes, interest not yet accrued IS a balancing figure.
But, Albert, get a hold of the bigger picture! All of this exercise is based on estimation applied to guesswork of forecasts and predictions based on uncertainties.
Just how accurate are you aiming for?
And the entire issue is an attempt to arrive at a “true and fair (undefined) position free of material misstatement based on work carried out on a test basis”
Accurate? Hmmmm!
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