Finance lease

You have misinterpreted the answer Give me the full question with the brought forward valueS, the carried forward valueS, the additions and the word-for-word note that tells you about the new leased property

OK, this is the full question: Monty is a publicly listed company. Its financial statements for the year ended 31 March 2013 including comparatives are shown below: Statements of profit or loss and other comprehensive income for the year ended: 31 March 2013 31 March 2012 $’000 $’000 Revenue 31,000 25,000 Cost of sales (21,800) (18,600) ––––––– ––––––– Gross profit 9,200 6,400 Distribution costs (3,600) (2,400) Administrative expenses (2,200) (1,600) Finance costs – loan interest (150) (250) – lease interest (250) (100) ––––––– ––––––– Profit before tax 3,000 2,050 Income tax expense (1,000) (750) ––––––– ––––––– Profit for the year 2,000 1,300 Other comprehensive income (note (i)) 1,350 nil ––––––– ––––––– 3,350 1,300 ––––––– ––––––– Statements of financial position as at: 31 March 2013 31 March 2012 $’000 $’000 $’000 $’000 Assets Non-current assets Property, plant and equipment 14,000 10,700 Deferred development expenditure 1,000 nil ––––––– ––––––– 15,000 10,700 Current assets Inventory 3,300 3,800 Trade receivables 2,950 2,200 Bank 50 6,300 1,300 7,300 –––––– ––––––– –––––– ––––––– Total assets 21,300 18,000 ––––––– ––––––– Equity and liabilities Equity Equity shares of $1 each 8,000 8,000 Revaluation reserve 1,350 nil Retained earnings 3,200 1,750 ––––––– ––––––– 12,550 9,750 Non-current liabilities 8% loan notes 1,400 3,125 Deferred tax 1,500 800 Finance lease obligation 1,200 4,100 900 4,825 –––––– –––––– Current liabilities Finance lease obligation 750 600 Trade payables 2,650 2,100 Current tax payable 1,250 4,650 725 3,425 –––––– ––––––– –––––– ––––––– Total equity and liabilities 21,300 18,000 ––––––– (i) On 1 July 2012, Monty acquired additional plant under a finance lease that had a fair value of $1·5 million. On this date it also revalued its property upwards by $2 million and transferred $650,000 of the resulting revaluation reserve this created to deferred tax. There were no disposals of non-current assets during the period. (ii) Depreciation of property, plant and equipment was $900,000 and amortisation of the deferred development expenditure was $200,000 for the year ended 31 March 2013. Prepare a statement of cash flows for Monty for the year ended 31 March 2013, in accordance with IAS 7 Statement of Cash Flows, using the indirect method. the answer is: Finance leases Balances b/f – current (600) – non-current (900) New finance lease (1,500) Balances c/f – current 750 – non-current 1,200 –––––– Balance cash repayment (1,050) –––––– the question is: why the New finance lease of (1,500) treated differently as cash outflow, whereas, the increased finance lease of (1200-900) and (750-600) treated as cash inflow?

Ok, the new lease is not treated as an outflow - it is credited to the obligations account so it increases the liability to the finance lessor The differences between the carry forward and the brought forward are not treated neither as an inflow nor as an outflow but they are use when preparing the Obligations T account to give a balancing figure of $1,050 cash paid - THAT is the outflow "why the New finance lease of (1,500) treated differently as cash outflow, " - this isn't an outflow - it's an increase in a liability "the increased finance lease of (1200-900) and (750-600) treated as cash inflow" - these are not inflows! They are simply the balances on the two liability accounts representing money due to the finance lessors This is what I wrote in my last post ... "You have misinterpreted the answer" I still believe that I am correct!

But, you still, Mike, differentiate between two issues have the same nature. the amount of (1,500) "it is credited to the obligations account so it increases the liability to the finance lessor" if it was that, we will apply the same rule on the "money due to the finance lessor" which will also increase the liability to the finance lessor . as we know that the increased liability is a liability. .

I'm not sure where you're taking this (basically I can't understand the point that you're making!) Open a T account for Obligations under Finance Leases You have two credit entries brought forward and a further credit entry to increase the liability by the value of the newly acquired asset You have two debit entries representing the two balances carried forward That will leave you with a missing figure on the debit side and that represents the cash paid to the finance lessor Is that better for you?

OK, that is good. Thank you

You're welcome