[Kyle]

I got 49!

The super frustrating thing, aside from the obvious, is that the examiner’s report is not for the version of the exam I did and is, therefore, utterly useless…

[Kyle]

Also, is there any gain to go through OCI?

[Kyle]

Just to hijack this thread a little, using the SBR illustration for depreciated replacement cost in the lecture notes (p.44), does the $2.5m in that illustration go to SFP (OCE)?

Additionally, does the depreciation on the replacement cost ($7.5m in the illustration) just go to the SPL?

[Kyle]

Thank you, John.

Yes, I can see how obvious it is now – much appreciated!

[Kyle]

Ok, think I have figured out where I went wrong, updated answer below. Best,

Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10
SFP
FL 7,109 6,465 5,788 5,077 4,331 3,548 2,725 1,861 954 NIL (2)

SPL
Fin. Cost 386 355 323 289 254 217 177 136 93 48

Workings: PV of future cash flows

Year 1 1,000 0.952 952
Year 2 1,000 0.907 907
Year 3 1,000 0.864 864
Year 4 1,000 0.823 823
Year 5 1,000 0.784 784
Year 6 1,000 0.746 746
Year 7 1,000 0.711 711
Year 8 1,000 0.677 677
Year 9 1,000 0.645 645
Year 10 1,000 0.614 614

7723

Workings: Amortised Cost

B/F Int. @ 5% Cash C/F
Year 1 7,723 386 -1,000 7,109
Year 2 7,109 355 -1,000 6,465
Year 3 6,465 323 -1,000 5,788
Year 4 5,788 289 -1,000 5,077
Year 5 5,077 254 -1,000 4,331
Year 6 4,331 217 -1,000 3,548
Year 7 3,548 177 -1,000 2,725
Year 8 2,725 136 -1,000 1,861
Year 9 1,861 93 -1,000 954
Year 10 954 48 -1,000 2

[Kyle]

Hi Chris,

Further to the above, for the following example – Ex. 3 – Sale and Leaseback (1) A – I have attempted to calculate the amortised cost and have run into a problem…

In the lecture working the example, you mentioned that the financial liability for the seller-lessee is recorded at fair value/transfer proceeds using amortised cost.

In the first instance, I attempted to use the fair value of 10,000 (000s), however, this got me nowhere close to NIL at the end of the calculation. I, therefore, decided to try discounting the lease payments back to Present Value, resulting in a b/f figure of $8,109 (000s), but I was then unsure as to whether or not my amortised cost working headers should be:

1) B/F – Cash – O/S – Int @5 % – C/F which is the same as the earlier example in this chapter and results in the final figures for O/S, Interest and C/F being 2, 0 and 2, respectively.

or

2) B/F – Int @5% – Cash – C/F which is the same as for financial instruments from the previous chapter and results in the final figures for Interest, Cash and C’F being 78, -1000 and 631, respectively.

As both calculations result in relatively low final c/f figures, I am a little confused as to which is correct – assuming that I am not way off base and should be using $10m in a manner I cannot seem to determine.

Any and all help greatly appreciated.

Best,

Kyle

[Kyle]

Hi Chris,

Following on from the above, in the example the lease liability begins its life in the amortized cost working at 22,730, the PV of the $5k annual payments over the 5-year term. However, the lease liability column in section 1.1 of the notes reads to me that we should be using fixed payments less incentives for initial recognition.

My question is, why is the $500 reimbursement not counted as an incentive?

Thanks in advance!

Best,

Kyle

[Author]

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