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Hey
I understand financial liability is measured at amortised cost, however if it’s held for trading than FVTPL can be used as well.
However m having a difficulty with the nunbers? Can you please guide me in the right direction..
Thank you
Hi Sam
May I assume that you’re happy with the $1.2m financial liability on the giving of the guarantee?
And the re-crediting of $0.4 to p or l after the first year?
Now, year two comes along and the subsidiary can’t pay so and it’s looking like we’re going to be called upon to pay the full $40m
We already are showing as a financial liability $0.8m so let’s increase this financial liability to provide for the full $40m potentially payable by crediting financial liabilities with $39.2m
But, at the last minute, we CAN pay the installment so we don’t need this $40m obligation – its no longer probable, it’s merely possible as a result of this adjusting subsequent event that fixes with greater certainty an amount or estimate as at the accounting year end
What’s more, we only have one more year of guarantee to worry about so, following the even spread over three years, there’s only $0.4 to show as a financial liability obligation. But there’s $40m in the account so we can reduce that value by $39.6m and send that back into p or l
Is that better?
Hey Mike
Thanks for your response.
Okay this is where my understanding is
Limited.If one year has lapsed, why do we need to provide for the prior year? Shouldn’t we just provide for 20m rather than full 40m and the 0.4 in P or l. Ie current year only?
Just can’t get my head round it.
I have read the model answer as well now, nothing seems to be working. Hopefully doing it again and again will make it better. But thank your for your response. Appreciate it.
No, we’re only spreading the guarantee costs of $1.2m
At the end of this second year, it looked like we were going to have to pay $40m so that’s what we provided. But then the second installment was paid, so we were no longer facing a potential $40m and we were able to reverse (substantially) the provision. That reversal then left us with just the remaining one third of the value of the guarantee to be written off next year against 2014 profits
Better?
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