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Good evening,
I am kindly asking for your help with the following problem:
” On 1 April 2007 Fino entered into an agreement to lease a plant which had a cost of 350,000. This is equal to both the FV of the plant and the PV of the min.lease payments. The lease required 4 annual payments in advance of 100,000 each commencing on 1 April. The plant would have a useful life of 4 years and would be scrapped at the end of this period. Prepare extracts of the SOPL and SOFP for the year ended 30 September 2007.”
I performed the following calculations:
1 April 2007
Opening liability 350,000
Payment (100,00)
Subtotal 250,000
Finance cost 12,500
Cl. liab at 262,500
30.09.071 Oct.2007
Op.liability 262,500
Payment (100,000)
Subtotal 162,500
Finance cost 8125
Closing liab. 170,625I get a non-current liability of 162,500 and a current liability of 100,000. However, the book states that the NCL is 175000 and the CL is 87,500. Of course, I don’t understand why. It says that the payments are in advance and from the book, in the second year it seems that they treat the payments in arrears. Thank you.
The payment you are showing as taking place on 1 October ?????
Surely the second payment of $100,000 only takes place on 1 April 2008
Do you want to try and recalculate with this revised payment date and, if you still can’t reconcile with the printed solution, post again
Ok?
I’m presuming the interest rate is 10% – if it isn’t and you need to post again, please tell me the annual interest rate
🙂
Ah, yes it’s 10% so sorry I completely forgot to write it. I got tangled up in the dates, but now I see the mistake. Thank you so much, I’ve been trying to understand this for 3hrs
3 hours!? That’s a complete exam’s worth!
I say to my students for both auditing and accounting papers “dates are important”
The only reason for an examiner to tell you a date within a questions because it is important / relevant.
One of the first things you must do in any exam question answering situation is read the requirement and invariably the accounting reference date is within that requirement.
But then, in addition, it is frequently the case that within the body of the question detail there is a date that is not the accounting reference date.
Your examiner (in fact, all the examiners) are relatively kind in that the dates that they normally use gives a “nice” 6 / 6 split of months but BEWARE! And use your fingers to count the months, both before and after, to make sure that it’s not a 7 / 5 split
Ok?
Yes, now that I finally understood I think I will be ok with the dates 🙂 Thank you again very much
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