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Hi Chris,
In regards to the answer to (a) of the Example 3 question whereby we recognise the proceeds of $10m as Financial Liability, I was wondering how to calculate the amortised cost with the information in the question.
My understanding of amortised cost is that in the 1st year, we have a b/f liability value of $10m, the effective rate (market rate interest) should be 5%, but what about the ‘coupon rate’ or the cash outflow that I need to derive at the c/f figure to show on the SFP at the end of the 1st year, and the same for the subsequent 9 years?
Thanks and Regards,
TimHi Tim,
The figure that you are missing is the $1 million lease payment each year, this is to be treated as the ‘coupon’ payment that we would usually see under the amortised cost method.
Thanks
Thanks for the guidance. Does this mean the c/f balance of the Financial Liability to show on the SFP at the end of the first year would be $10m + (10m*0.05) – $1m = $9.5m?
By doing this, I wouldn’t be able to end up at Nil value at the end of the 10 years’ lease.
Thanks again.
Regards,
Tim
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