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In TOURMALET
Adjustment of
Revenue includes $50M for an item of plant sold on 1 June 2003. The plant had a book value of $40M at the date of its sale, which was charge to cost of sales. On the same date, Tourmalet entered into an agreement to lease back the plant for the next five years (being the estimated remaining life of the plant) at a cost of $14M per annum payable annually in arrears. An arrangement of this type is deemed to have a financing cost of 12% per annum. No depreciation has been charged on the item of plant in the current year.How did we arrive to 2M of interest?
Can you explain the steps to calculate lease (Advance and Arrears) to arrive to NCL and CL and interest amount?12% on 50m for 4 months?
Steps:
“Borrow” 50
add on 4 moths’ interest =+2
Therefore “borrow” 52
Pay first instalment “tomorrow” ie 1 October ’04 of 14m
That leaves balance at 1.10.04 of 38m
Interest for 05 is 12% x 38 = 4.56
So, before next payment, capital O/S is 38 and accrued interest is 4.56
Pay on 1.10.05 14, leaves 28.56
28.56 is LTL ( NCL )
38 – 28.56 is CL – F L Creditor
and 4.56 is CL F L Interest
Current liability on 04 SoFP is 38
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