FRdec 2009 uk question 2

IAS18 (Revenue Recognition): If sales include aftersale servicing & support cost, then a proportion of sales/ revenue should be deferred. The deferred amount should cover costs & reasonable profit of the service.

In this question, we must deferred revenue of aftersale 2 years.
+ Servicing & support costs of 2 years aftersales: $1.2 x 2 years = $2.4
--> Which we need to caculate is Revenue deferred (not Costs)
+ Gross profit = 40%
=> Profit/ Sales = 40/100
=> Cost/ Sales = 60/100
=> Sales = (Cost x 100) / 60 = ($2.4 x 100) / 60 = $4m

Impacts:
I/S: Sales - 4m
B/S: Deferred incomes (4m) of 2 next years (2m each year) will be shown in Currrent & Non-current Liabilities (2m for each)

in the same question, we got the 5% convertible loan notes was issued for proceed 20 million on 1 Oct 2007, It has effective interest rate 8%, in normal practice, we should use amortisation method to amortise that mean, the finance cost should be 1648 instead of 1,475 as answer, Can you explain me this??

We know: Convertible = Option + Redemption
When working on convertible loan note, pls take note: in TB, option is included or not.
+ If there's no option--> It means that convertible loan note already included (option + Redemption) Pls work out as normal
+ If there 's option --> Then, Redemption = Convertible loan note - Option

In this question, you can see TB shows Equity Option (2m)
So, Redemption = 20m (Proceed of convertible loan note) - 2m (Option) = 18m

Period/ Bal owed at beginning/ Interest charge 8%/ Interest paid 5%/ Bal owed at the end
01.10.07-30.09.08/ 18 000 / 1440 =(18 000 x 8%) / (1000) =(5% x 20 000) / 18 440
01.10.08 -30.09.09/ 18 440 / 1475 = (18440 x 8%) / (1000) / 18 915

You can see above:
+ (01/10/07-30/09/08): Bal owed at the end @ 30.09.08 = 18 440
This is also the bal owed at the beginning @ 01.10.09 of following period. And it is also the amount given in TB

+ (01/10/08 -30/09/09):
I/S: Interest charge = 1475
B/S: Loan note payable at the end of period = 18 915. As it is redeemable in 2012, so it is in Non-current liability.

Hi Trang, It's really great, but it 's the first time I know this very new approach to figure out result like that :). Many thanks