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In the above technical artical, I can understand example 1, but in “Example 2 – Rentals in advance treatment” why NCL is 14000 but not 14000+1400?
In example 1, we take the interest into consideration, but why not example2?Thanks!
The obligations under finance leases relate only to the capital element outstanding on the lease and these obligations need to be split into long-term and current.
There may also be a current liability relating to interest accrued sine the last instalment payment date (as well as a current liability element of the capital outstanding)
Ok?
Hi Mike,
Sorry to resuscitate this but I am stuck on the exact same point.
I really dont understand the logic of why with payments in advance we ignore the interest that will accrue when calculating the non current liability.
In the example above, again, why is it not 14000 + 1400 the NCL? Could you please explain with different wording. Thanks.
Hi,
it is because the first thing that happens in the next accounting period is the payment of the lease liability and so there will be in interest that has been accrued on this year’s outstanding liability.
You don’t need to think like this though and just need to follow the methodology given within the materials on how to calculate the current/non-current split.
Thanks
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