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an item is leased at 700,000 fair value on 1 Oct x8. lease requires 4 payments of 200,000 each at every 1 Oct, starting 1 oct x8. implicit rate is 10%.
what r the extracts at the year end 31 March x9
year 1:
b/f=700
rental=(200)
capital o/s = 500
6 mts % = 25
Bal at 31 Mar x9 = 525my working below is wrong:
so, Total liab = 525 = Non curr. Liab (NCL) + curr. liab (CL)
since the rentals are made in advance, the CL=200
thus NCL = 525 – 200 = 325correct working by kaplan:
NCL=350
CL=525-350= 175——
i know that 350 is the outstanding balance after rental in year 2. but our CL is 200, no?
thanks again
If you know that 350 is the outstanding balance after rental in year 2 is 350 and you also know that the total balance at 31 March X9 is 525, then the current liability must be the difference!
yeah..but since we are paying 200 in advance,,, wdnt that always be the current liab??
But the current liability relates purely to the capital element of the obligation. That 200 includes the 25 interest from October to March that won’t be paid until next October
Have you watched the lecture?
Mike sorry,
I have stuck in this question.Why they have used $ 700 instead of $ 697,370 Which is the lower amount ??
Premium paid =200,000
add
200,000*((1-(1+0.1)^-3)/.1)=497,370Total…..697,370
I hope this is not one of my questions! I calculate the present value to be the same as your calculation ie 6,973,704 and that should be the amount capitalised
Ok?
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