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Hi sir mike
Hindberg is a car retailer. On 1 April 2014, Hindberg sold a car to Latterly on the following terms:
The selling price of the car was $25,300. Latterly paid $12,650 (half of the cost) on 1 April 2014 and would pay
the remaining $12,650 on 31 March 2016 (two years after the sale). Hindberg’s cost of capital is 10% per annum.
What is the total amount which Hindberg should credit to profit or loss in respect of this transaction in the year
ended 31 March 2015?
A $23,105
B $23,000
C $20,909
D $24,150i dont understand. i got 12650 +interest 1rst year(12650 x10%) as the principal will be paid after 2 years
My answer is D
$12,650 receivable in one year’s time has a present value of $12,650 / 1.1 at a cost of capital of 10%
So the amount outstanding, payable in one year, has a today value of $11,500
The finance income associated with this receivable is 10% x $11,500 and will be recognised in the year 2016
So, in answer to the original question, the answer is $25,300 – $1,150 = $24,150
Ok?
I thought discount factor would be 12650*(1-0.1**1) or 0.9. That’s the way I’ve seen it explained previously. Why is it 12650/1.1?
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