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- This topic has 8 replies, 2 voices, and was last updated 5 years ago by aarina.
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- July 28, 2018 at 3:42 pm #465060
Hi
How to find cash price for this right to use asset given the following details:
FLA @10% TB initial deposit 2m, first rental 6m. Annual payment $6m at 31/3 each year for the next 4 yrs. PVMPL excluding deposit is $23m
Also how to find the PVMLP is not given in question. The value need to cal that is only discount factor is it? and eir
Thanks
July 30, 2018 at 8:36 pm #465316Hi,
You will be given the PVMLP in the question at this level, but is PVMLP not old terminology under IAS 17? Under IFRS 16 it is now referred to as the present value of future payments.
If you wish to calculate it then you will need to discount the future payments using the rate implicit in the lease.Thanks
July 31, 2018 at 3:01 am #465345Oh okay my old textbook. Thanks for the heeds.
Wait im confused.
To find the PVFP = discount the future payments using the rate implicit in the lease with is the NR (nominal rate)
Future payments: $6m x 4years : $24m x 1.10^-4: $16.39
But already given in question the PVFP is $23m.
Q1: how do i work out the details in this question to confirm that the PVFP is indeed as per $23m?
Q2. the answer for the cash price is $25m. How do i find $25m. I’m assuming its $23m PVFP + $2m deposit right? The cash price is the cost and will be used to calculate carrying amount of asset in SOFP
Q3: (not a question more like a statement, for you to kindly confirm) Interest payment calculated using eir (EIR x PVFP) and instalment calculated using (nr x nominal value).
Q4: PVFP is excluding deposit and issue cost right?
July 31, 2018 at 3:08 am #465347The lease term is 5 years i suppose since deposit was made in the 1st year and further instalment of 4 years.
Cash price was not give i assume implied.
July 31, 2018 at 3:09 am #465348There’s only one discount rate given which is the implicit finance cost of 10%
July 31, 2018 at 8:02 pm #465460@aarina said:
Oh okay my old textbook. Thanks for the heeds.Wait im confused.
To find the PVFP = discount the future payments using the rate implicit in the lease with is the NR (nominal rate)
Future payments: $6m x 4years : $24m x 1.10^-4: $16.39
But already given in question the PVFP is $23m.
Q1: how do i work out the details in this question to confirm that the PVFP is indeed as per $23m?
Q2. the answer for the cash price is $25m. How do i find $25m. I’m assuming its $23m PVFP + $2m deposit right? The cash price is the cost and will be used to calculate carrying amount of asset in SOFP
Q3: (not a question more like a statement, for you to kindly confirm) Interest payment calculated using eir (EIR x PVFP) and instalment calculated using (nr x nominal value).
Q4: PVFP is excluding deposit and issue cost right?
Q1. Don’t forget to add the $6m payment of the first rental too, plus you don’t need to calculate the figure if it is given.
Q2. Yes, I’d assume that the £25m comes from adding the two together.
Q3. Yes, but use the lease liability table to help you here, it makes it a bit easier. Also note the annual interest expense changes each year as the lease liability changes each year, but the cash payment each year is the same.
Q4. The deposit paid will reduce the value of the liability as we DR Liability CR Bank.
Thanks
July 31, 2018 at 8:02 pm #465461@aarina said:
The lease term is 5 years i suppose since deposit was made in the 1st year and further instalment of 4 years.Cash price was not give i assume implied.
Correct!
July 31, 2018 at 8:03 pm #465462@aarina said:
There’s only one discount rate given which is the implicit finance cost of 10%You wouldn’t really be given another interest rates in a leases question, so don’t worry and just use the rate given in the question.
August 5, 2018 at 11:15 am #466263Thanks heaps. My mood has improved dramatically when i changed my thinking that my grass is greener here where i am than on the other side. Cannot wait to finish acca and get to study design innovation and smart cities and coding afterwards lol
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