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Dear Mike,
There are some issues whilst constructing FS that I am confused.
1. Regarding finance cost of loan note…
What is the difference between finance cost and interest?2. This is from BPP exam kit.
If the company received a renewal quote of 400,000 from the insurer. Then the directors decide it is too expensive and decide to self-insure. They charged 400,000 to administrative expenses and credited the same amount to the insurance provision. During the year, the company incurred 250,000 of expenses relating to previously insured property damage which it has been debited to the provision.The part I am confused is when calculating the admin cost.
The solution, from the trial balance (16,500,000), does insurance provision reversal (-150,000).I am not quite understanding this logic.
Could you please help me?3. Consumer contract
When calculating profit to date. Do I subtract cost to date or total cost x percentage completed from revenue x percentage completed?
Thank you for your help!
1) “What is the difference between finance cost and interest?”
All elephants are animals but ….
Interest is a finance cost but not all finance costs are interest
Nothing to get excited about!
2) $400,000 was charged against profits through the Administrative Expenses account and … it shouldn’t have been. We’re not allowed to make provisions on a general guesswork estimation basis so this $400,000 should never have been recognised
We need to take it out of Administrative Expenses and the Provision by reversing the entry
However, it turns out the $250,000 paid out on insurance claims SHOULD go through Administrative Expenses so we can short-cut the adjustment
$400,000 HAS gone through, only $250,000 should have gone through, so all we need to do is remove the remaining $150,000 from Administrative Expenses and eliminate the balance of $150,000 from the Provision account
3) It’s all done for you in the course notes but the answer to your question is “total cost x percentage completed from revenue x percentage completed?”
OK?
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