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Eunice03
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400. ATLAS
Revenue includes the sale of $10 million of maturing inventory made to Xpede on
1 October 20X2. The cost of the goods at the date of sale was $7 million and Atlas has an option to repurchase these goods at any time within three years of the sale at a price of $10 million plus accrued interest from the date of sale at 10% per annum.
At 31 March 20X3 the option had not been exercised, but it is highly likely that it will
be before the date it lapses.ANSWER
Non?current liabilities
In?substance loan from Xpede
(10,000 + 500 accrued interest (W3)) 10,500Good day, Please i don’t understand why the interest of 500 was included in non-current liabilities and not current liabilities since it would be paid in 6 months time.I also don’t understand why the remaining interests of 2000 for the next 2 years was not included in non-current liabilities. I’ll appreciate if you can explain better.
P2-D2
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Hi,
We are just accruing the interest, there is no obligation to pay anything until the end of the agreement and so it is non-current.
We do not need to account for the future interest accruals as they are future obligations, not present obligations.
Thanks
Eunice03
- Topics: 61
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But by carrying out the sale, isn’t the 2000 already a present obligation with a deferred payment date?I thought that was the point of non current liabilities
P2-D2
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No, as we are matching the interest expense to life of the financing arrangement.
Eunice03
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