ias 17

Hi sorry for taking so long – I’ve only just got home after some time away so now I’ve got my F7 notes in front of me.

Have you worked all the way through the repayment schedule? You WILL NOT have to do this in the exam 🙂

If you HAVE worked through the repayments for all 7 years, you’ll see the amount outstanding at the start of the final year is 2,926. ( If you haven’t worked through the full schedule, then do it now! )

OK, 2,787 + 139 ( 10% interest for half a year ) then deduct 1,500 for the instalment leaves 1,426. Add 71 ( 10% interest for half a year ) gives us 1,500 ready for the final payment

So, the last two instalments add up to 3,000 but include 139 + 71 interest. Therefore, the capital element of these final two instalments is 2,790.

In the answer, the first instalment next year of 1,500 has a present value of 1,429 and the second one a present value of 1,361. These amounts are derived from the working above – with 1,500 payable in 6 months, what’s the present value? It’s the same as that final instalment we worked out earlier. During this coming twelve months, the second instalment of 1,500 is payable in one year’s time and has a present value of 1,500 less 139.

You need to do that also for years 2 – 5 and then for the final year.

The “gross” / “net” table is simply the extended table / schedule of repayments but the first year in the schedule is used to calculate the net amount for the year “> 5 years” information

Has that helped?