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P2-D2.
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- May 28, 2022 at 10:43 am #656718
Hi, I want to ask a question regarding this exercise. I also find this question in Kaplan Exam kit.
Landing is considering the acquisition of Archway, a retail entity. The summarised financial
statements of Archway for the year ended 30 September 20X6 are
Statement of financial position
$000 $000
Non?current assets
Property, plant and equipment 29,400
Current assets
Inventory 10,500
Bank 100
––––––– 10,600
–––––––
Total assets 40,000
–––––––
Equity and liabilities
Equity shares of $1 each 10,000
Retained earnings 8,800
–––––– 18,800
Current liabilities
4% loan notes (redeemable 1 November 20X6) 10,000
Trade payables 9,200
Current tax payable 2,000
––––––– 21,200
–––––––
Total equity and liabilities 40,000
(iii) The 4% loan notes have been classified as a current liability due to their imminent
redemption. As such, they should not be treated as long?term funding. However, they
will be replaced immediately after redemption by 8% loan notes with the same
nominal value, repayable in ten years’ time
My question is the 8% loan note will only be existed after the redemption of the 4% loan notes which is after the date of the financial statements which is 30 September 20X6. Why would we include this in the adjusted statement ?
I hope you will answer. Thank you so much. I know this is kind of obvious but I genuinely don’t understand it.May 31, 2022 at 8:39 pm #657001Hi,
What adjustment is it that you do not understand. Sorry, I can’t quite make it out from what you say above. If you let me know then I’m happy to help.
Thanks
June 1, 2022 at 5:14 am #657027I don’t understand why we would include 8% loan notes in the non-current liability in the SoFP as at 30/9/20X6 when it have not happened yet.
Thank you for your answerJune 4, 2022 at 9:24 am #657327Hi,
As they are effectively directly replacing the current loan in place then we classify it as a non-current liability. It gives a more reflective perspective of the position of the business at the reporting date.
Thanks
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