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Hi tutor,
I’ve watched your lectures on finance leases and was able to understand them. I’ve attempted a few questions from BPP kit and got them right too, but not for this question 162 from Kaplan revision kit:
On 1 Apr 2007, Fino increased the operating capacity of its plant. Fino entered into an agreement to lease the plant, which has a fair value of $350,000, from the manufacturer. The lease required four annual payments in advance of $100,000 each commencing on 1 Apr 2007. The plant would have a useful life of four years and would be scrapped at the end of this period. Prepare extracts of fino’a statement of profit or loss and statement of financial position for the year ended 30 September 2007 in respect of the rental agreement assuming it is a finance lease. Use an implicit interest rate of 10% per annum.
I got both the carrying value of the asset and interest payments right using the actuarial method, but got the non current (NCL) and current liabilities (CL) wrong.
My answer:
NCL: 184,406 – balance at 30 sept 2008
CL: $78,094 (262,500 [balance at 30 sept2007] – 184,406)
Here are my workings:Balance at 1 apr 2007 $350,000
Installment ($100,000)
Balance at 1 apr 2007 $250,000
Interest for 6 months @ 5% 12,500
Balance at 30 sept 2007 $262,500
Interest for 6 months $13,125
Balance at 1 Apr 2008 $275,625
Installment ($100,000)
Balance at 1 Apr 2008 $175,625
Interest for 6 months $8,781
Balance at 30 sept 2008 $184,406The model answer:
NCL: $175,000 (250,000-75,000)
CL: $87,500I believe this was taken from an ACCA december 2007 paper and the solution there is exactly the same as what’s written in the kit (thus no explanation at all).
Did I get something wrong?
Hope you could help me on this, thanks 🙂
I believe that the issue here is ‘How do we calculate the interest when the instalment payment date does not coincide with the accounting year end?’
That second instalment of $100,000 pays off the interest from the first 6 months ($12,500) and the interest from the second 6 months
The calculation for the second 6 months interest is surely 10% for half a year based on $250,000 and not on $262,500
So the capital element that will be settled by that second instalment is $75,000 and that means that the non-current liability is $250,000 – $75,000 = $175,000
Does that explain it for you?
Oh no how could I have missed that! In that case, shouldn’t then the non current liability be the balance at 30 Sept 2008? Since that amount would be settled after 12 months. Or do I have to follow the payment date of instalments?
The ncl should be the capital balance outstanding as at 30 September 2008, yes
Sorry mike, I’ve been trying to post questions since yesterday but every time I click submit it loads into a “blank” page with only the heading of my question. What’s going on and what should I do? Tried posting on the technical problem forum but couldn’t as well. The only way I could communicate here is to reply to your response…
Tried splitting the question up too, the odds surely are against me. I’ll try again when I get home!
Well, I’ve received both of these
Maybe you’re pushing the wrong key when selecting which forum you want to post onto?
Hi Mike,
I’m confused with the calculation of closing inventory in this question: Highwood co ACCA June 2011 question 2
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance.
The increase in closing inventory as given in the answer:
Delivered goods $(2.7m)
Cost of goods sold $6m
Increase in closing inventory $3.3mMy doubt:
“Received a delivery of goods at $2.7m…” doesn’t this mean that inventory would have increased?And “made sales of $7.8m….” means that $6m worth of inventory would have left the closing balance?
Therefore my answer was:
Goods received $2.7m
Goods delivered ($6m)
Decrease in closing inventory 3.3mI have another doubt too:
The selling price was $2.4m and they were sold at a gross profit margin of 25%. What should the cost of inventory be?The exam answer:
$2.4m x 0.75 = $1.8mShouldnt it be:
$2.4m x 1.0/1.25 = 1.92m?This was taken from Kaplan revision kit question 190 on Keystone Co.
Hope you could advise me on these, thanks 🙂
Hi Mike,
I’m confused with the calculation of closing inventory in this question: Highwood co ACCA June 2011 question 2
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance.
The increase in closing inventory as given in the answer:
Delivered goods $(2.7m)
Cost of goods sold $6m
Increase in closing inventory $3.3mMy doubt:
“Received a delivery of goods at $2.7m…” doesn’t this mean that inventory would have increased?And “made sales of $7.8m….” means that $6m worth of inventory would have left the closing balance?
Therefore my answer was:
Goods received $2.7m
Goods delivered ($6m)
Decrease in closing inventory 3.3mI have another doubt too:
The selling price was $2.4m and they were sold at a gross profit margin of 25%. What should the cost of inventory be?The exam answer:
$2.4m x 0.75 = $1.8mShouldnt it be:
$2.4m x 1.0/1.25 = 1.92m?This was taken from Kaplan revision kit question 190 on Keystone Co.
Hope you could advise me on these, thanks 🙂
^ sorry had some problems with the website just now
Hi Mike,
I’m confused with the calculation of closing inventory in this question: Highwood co ACCA June 2011 question 2
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance.
The increase in closing inventory as given in the answer:
Delivered goods $(2.7m)
Cost of goods sold $6m
Increase in closing inventory $3.3mMy doubt:
“Received a delivery of goods at $2.7m…” doesn’t this mean that inventory would have increased?And “made sales of $7.8m….” means that $6m worth of inventory would have left the closing balance?
Therefore my answer was:
Goods received $2.7m
Goods delivered ($6m)
Decrease in closing inventory 3.3mI have another doubt too:
The selling price was $2.4m and they were sold at a gross profit margin of 25%. What should the cost of inventory be?The exam answer:
$2.4m x 0.75 = $1.8mShouldnt it be:
$2.4m x 1.0/1.25 = 1.92m?This was taken from Kaplan revision kit question 190 on Keystone Co.
Hope you could advise me on these, thanks 🙂
Haha alright I hope this works.
I’m confused with the calculation of closing inventory in this question: Highwood co ACCA June 2011 question 2
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance.
The increase in closing inventory as given in the answer:
Delivered goods $(2.7m)
Cost of goods sold $6m
Increase in closing inventory $3.3mMy doubt:
“Received a delivery of goods at $2.7m…” doesn’t this mean that inventory would have increased?And “made sales of $7.8m….” means that $6m worth of inventory would have left the closing balance?
Therefore my answer was:
Goods received $2.7m
Goods delivered ($6m)
Decrease in closing inventory 3.3mI have another doubt too:
The selling price was $2.4m and they were sold at a gross profit margin of 25%. What should the cost of inventory be?The exam answer:
$2.4m x 0.75 = $1.8mShouldnt it be:
$2.4m x 1.0/1.25 = 1.92m?This was taken from Kaplan revision kit question 190 on Keystone Co.
Hope you could advise me on these, thanks 🙂
i hope this works!
Hi Mike,
I’m confused with the calculation of closing inventory in this question: Highwood co ACCA June 2011 question 2
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance
Hi Mike,
I’m confused with the calculation of closing inventory in this question: Highwood co ACCA June 2011 question 2
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance.
I’m confused with the calculation of closing inventory in this question: Highwood co ACCA June 2011 question 2
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance.
this question: Highwood co ACCA June 2011 question
The inventory of Highwood was not counted until 4 April 2011 due to operational reasons. At this date it’s value at cost was $36m and this figure has been used in the trial balance. Between the year end of 31 march 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2.7m and made sales of $7.8m at a mark up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in highwood’s purchases or revenue in the above trial balance.
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