Q BBS stores(6/09)

[hasanali95]

1)When a part of principal amount will be repaid each year,do we take the Profit to Retained earnings after deducting this amount of principal or just ignore it?

2)The property being sold contains land and bldgs and assets under construction.As an opportunity cost,the bpp kit have calculated the rent foregone on the whole figure being disposed off.But is it really appropriate to take rent to be foregone on the assets under construction??

3)in part b)how have the bpp arrived at the value of the property section?

Thanks 🙂

[John Moffat]

1) I don’t understand your first question. What profit are you talking about?

2) I assume that the BPP book does the same as the examiner (I do not have BPP books). The assets may be under contraction, but we are looking at future rent foregone and presumably in the future the assets will be completed

3) From the question, land and buildings are 2297, plus under construction 165 gives a total of 2462

[hasanali95]

In 1)im asking regarding the principal amount of the loan that will be repaid each year

Thanks alot

[John Moffat]

I know what you are asking about.
I asked you what profit do you mean?!

[hasanali95]

When the principal is repaid,do i reduce it from the forecast Income statements profit for the year and then add that remaining profit to retained earnings?
Or do i take the profit from the I/s direct to the Sofp Retained earnings without adjusting for the principal amount paid?

Thanks

[John Moffat]

But repaying borrowing does not affect the income statement at all (except of course that the interest payable will be lower if some of the borrowing has been repaid)

[Author]

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