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Hi Mike,
1) I am confused when Rose has the dinar property. How to work out the revaluation surplus? My way is doing all numbers in Dinar, then translate to $, but the answer is not the same as that in answer sheet.
My way as below ( in dinar)
1. May 2010, cost 30, useful life 20 years, so deprn per year: 30/20=1.5 dinars
to 30 Apr. 2011, C.V. 30-1.5=28.5
revaluation per Q: 35
so, revaluation surplus is 35-28.5=6.5 dinars.Then if I use closing rate: 5, the RS is 6.5/5=$1.3
But answer is $2.25, I don’t know why I am wrong?
When we have foreign subs, we first translate all numbers in $ then calculate or just keeping in foreign currency, then change. I think the latter one is easier. But will make mistakes. But when I work on GW in dinar, I have no problem. I don’t know which way to choose.
One more concern, why there is no revaluation surplus realized in deprn. fro R.E.? I may have some concepts mixed.
2) bonus scheme,
My way is
1.May 2011, 40X2%=0.8
2012, 40×2%x1.05 then using DF@8% to work out P.V.
till 2015, then adding all discounted cash flows up, to be treated as provision (the 2012’s figure is CL, remaining is NCL), but the answer is no discount, it averages the whole payable, Why, and it also only Dr. 31 Aprl 2011’s figure as current service cost Cr. NCL this figure? But no recognition of remaining PV of bonus to pay to employee in other coming four years? Why????Pls help explain….Thanks,
Qin
Re your first point, I think that you’re looking at the original purchase with the benefit of hindsight. when the property was acquired, it would be reflected at 30m / 6 = 5m and that is the basis for the first year’s depreciation of .25 giving a carrying value in $ of $4.75
At the year end, it’s value is re-assessed at 35m dinars and the rate as at the date of revaluation is now 5 to the $. It’s translated value is therefore 7 and that compares with 4.75 hence the revaluation of $2.25
A transfer from Revaluation Reserve to Retained Earnings is regarded as “good practice” but is not mandatory
Spreading the cost of unvested bonuses is allocated evenly over the vesting period. You say that discounting has not been applied. It has in the printed solution that I have checked out! I quote “The current service cost is the present value of this amount at 30 April 2011. That is $884,000 divided by 1·08 for four years”
And there’s no current liability until we reach the end of the third year
Hi Mike,
Still can’t understand answer sheet Working 9 – employee bonus scheme
Why average all payable and discount the average. Actually every year, the cash flow going out is not the same amount.
Why no CL, I think next year’s (2012) service cost should be current liability.
IFRS2 identifies the way (as does a recent article in Student Accountant (don’t ask me the reference for that article)) of allocating the cost of a bonus payable in a number of years’ time. Calculate the expected cost, apply discount factors to get to present value, spread the present value over the vesting period and make adjustments each year as information becomes more accurate
No current liability until end of year 3 because no amount is “payable within the next twelve months” until the end of year 3
Hi Mike,
Very sorry to try to ask again about the employee bonus scheme. I really can’t understand it when I review your answer.
I tried to find the article you mentioned, but can’t find it.
Could you please give me some instruction. I am worried if I meet such Q in future
exams.I don’t know the behind mechanism of this scheme. I really can’t understand working 8 0.65 as NCL???
Many Thanks,
QinYou said, ” 1) Calculate the expected cost, 2) apply discount factors to get to present value, 3) spread the present value over the vesting period and make adjustments each year as information becomes more accurate.”
I used your calculation order and comparing to working 9, under your order 1-2-3, the cumulative bonus payable – future value is 4.42m at the end of year 5. I first discount 4.42m to current year then spread over for five years. The result is still 0.65m annually. Same as the answer sheet. But the examiner’s way is 1-3-2. I can’t understand this.
BUT, I mean NCL should be the four years (2012-2015) unvested bonus cost: 0.65×4?
Really really feel sick for this question 🙁
No, because only one year has passed so only one year’s worth has been earned. If all the potential beneficiaries were to leave at the end of the first year, no more bonus would vest so the long term liability next year would be the same 0.65 as increased by unrolling it at 8% for the next year
Ok?
Trying to understand – Long term liability next year – so the CL or NCL depending on the vest period, the obligation should be realized in FIVE years, so it’s really a NCL right?
So at the end of year 2012, below is right?
Dr. R.E. 0.65×1.08
Cr. NCL 0.65X1.08But for in 2013, why there is a CL? if all assumed employees would leave in 2014?
Just want to 100% make sure I understand this bonus problem.
Thanks,
QinI don’t know why there is a current liability in 2013 and, what’s more, I’m now beyond caring! I’m not even going to look it up in the past exams!
🙂
I c, I may be too much caring, so when we were in 2012, we can estimate 2013′ situation.
Thanks,
Qin
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