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June 2010 Q3-Deltoid, why no purchase of PPE in investing act. I m trying to make a T a.c. for PPE according to all conditions, but some figures not sure. Could someone let me know Dr./Cr. side under PPE Ta.c. including accum deprn, disposal. Many Thanks.
There is only leased plant part in the answer sheet. Actually my question is how to put all relative figures under PPE T a.c. to find the movement of cash purchase if any. And also want to know how to put the disposal figure with accum depren wihin PPE T a.c. Sometimes, we are asked to find the balancing difference to get the cash flow, sometimes not to do like that, just as this question.
cash movement in leased plant is only the lease payment. but before finding that if we have to find whether a new lease is taken or not.
balance b/f 2500
depreciation (1800)
new lease (balancing figure) 5800
balance c/f (6500)
total 0here, i am taking debit values as +ve and credit values as _ve. and the total should be zero. we can find the balancing figure this way. it is better than doing t table. just follow the above method while solving cash flow qns.
now, you got new lease taken, now we will liability side to find out payment.
taking debit as +ve and credit as -ve.
balance b/f -current (800)
non current (2000)
new lease (5800)
payment (balancing figure) 2100
balance c/f -current 1700
non current 4800
total 0Thanks for your patience to reply me. But I cant understand.
1)Why we only calculate leased plant not whole PPE T account?
2)When you showed the steps, why not input finance lease charges this year for 300?that was a good question.
finance lease property is an asset and liability at same time. so the installment pay is classified under financing activities.
there were no addition or disposal of owned plant.
all the leasehold property were sold.(already given)
only unknown element is cash flow in lease plant. the other 2 we already know. so, we took only lease plants.
u can do using PPE T acc also.ur 2nd doubt,
if you add finance cost in the t acc u will get the real amount paid, ie the installment amt. this installment amt has 2 element , one is capital and other is finance cost. finance cost is 300 and is classified under operating activities. cash paid 1000 includes this finance cost. the rest amt is found as above reply. that is capital element, which is classifed under financing activities.
Hi Vipin or Najiya,
I reviewed this topic again with Dec.09 Q3-Crosswire. I found Crosswire’s interst paid 400+350 (finance lease charges+loan note interests) was showed under financing act.
Do you think it should be deduced under operating act, just before tax paid step.
HI Caoqin,
As you mentioned there are two part within interest.
1) Finance lease charge – This amount is quiet similar to taking a loan to purchase a asset. (Note quiet similar to Substance over form). The amount is taken to finance asset, as such this financing activity and so interst paid on that amount should also be considered as financing activity.2) Loan note interest: – on similar lines to above, this amount is also taken to finance the business needs. As such its correct to show in finance act.
Now to your answer your question. you can also show these in operating activity but ideally its better to show them on finance activity.
Hope it clears your doubt.
Regards
RajThanks Raj
you can also show these in operating activity but ideally its better to show them on finance activity.
Is that true? Just realized treatment is inconsistent. Will I have marks for both ways in a real exam?Also checked my BPP revision book for this year, there is no exercise for Crosswire Dec.09. And no mention in its Mock exams list.
Maybe 09’s way is old and we have updated new ways for it? Hope clear points on this.
Thanks again for your patience on my question.
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