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I am using Kaplan study text and I am trying to understand this.
After spliting the financial liability into current & non-current element in compound instrument Q’.
After calculating the equity element as the difference between the liability element & loan proceeds then I calculate the amortised cost to get the Balance c/f at the each year-end as such:
Bal b/f —— 4228 (yr1) 4466(yr2) 4723(yr3)
Finance costs ——- 338(yr1) 357(yr2) 377(yr3)
Cash paid ——- (100)(yr1) (100)(yr2) (100)(yr3)
Bal c/f ——– 4466(yr1) 4723(yr2) 5000(yr3)Now, the KAPLAN classify the current & non-current as like this:
Non-current liability:
Financial liability 4466(yr1) 4723(yr2)Current liability:
Financial liability 5000(yr3)I don’t know why it is classify AS SUCH…
If I were to do this I would have done SOMETHING LIKE this:
Non-current liability:
Financial liability 4723(yr2) 5000(yr3)Current liability:
Financial liability 4466(yr1)PLEASE EXPLAIN THIS TO ME!!!
You will not have time to split current and non-current liability in the exam and I don’t think you would get any extra marks if you did
If the bond is repayable at the end of the third year:
End of year one would be non-current liability of 4466
End of year two would be current liability of 4723
End of year three no liability because the bond has been repaid or converted.Safest bet is not to try and split it up.
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