Finance Costs – Knowsia

FR – L2 – Q58 – Financial Instruments

Calculate finance cost and SFP extracts for Bolgania Ltd’s 6% convertible loan stock for 20X4; comment on Accra Advisors’ advice.

Question

On 1 October 20X3 Bolgania Ltd issued GH¢10 million 6% convertible loan stock on the following terms:
The issue price was at par.
The loan stock is convertible into the company’s equity shares at the option of the stockholders four years after the date of its issue (30 September 20X7) on the basis of 20 shares for each GH¢100 of loan stock. Alternatively it will be redeemed at par.
Accra Advisors had advised that if Bolgania Ltd had issued similar loan stock without the conversion rights, then it would have had to pay an interest (coupon) rate of 10% on the loan stock. This is because the terms of conversion to equity shares are favourable.
Accra Advisors further advised that because it is almost certain that the loan stock holders will exercise their right to convert to equity shares, the loan stock has the substance of equity and can be included as such on the statement of financial position. This has the added advantage of improving/reducing the company’s gearing (debt/equity) in comparison to what would be the case with the issue of ‘straight’ loan stock.

The present value of GH¢1 receivable at the end of each year, based on discount rates of 6% and 10% can be taken as:

Required
In relation to the 6% convertible loan stock, calculate the finance cost to be shown in the statement of profit or loss and the extracts from the statement of financial position for the year to 30 September 20X4; and comment on Accra Advisors’ advice.

Answer

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Tags: Convertible Loan Stock, Debt and Equity Classification, Finance Costs, Financial instruments, IAS 32
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q43 – Leases

Show extracts from Zest Pharma Plc's accounts for a 5-year lease with a 2-year extension option, including calculations for 20X4.

Question

Zest Pharma Plc leases an asset on 1 January 20X4.
The lease is for five years at a rental of GH₵600,000 per half year in advance, with an option of two more years at nominal rental. It is reasonably certain that the option will be exercised. The present value of future lease payments is GH₵4,400,000.
The directors of Zest Pharma Plc consider that the asset has a useful life of seven years.
The rate of interest implicit in the lease is 7.68% per half year.

Required
Prepare relevant extracts from the accounts of Zest Pharma Plc at 31 December 20X4.

Answer

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Tags: Depreciation, Finance Costs, Financial Statements, IFRS 16, Lease Liability, Leases, Right-of-Use Asset
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

Title: FR – L2 – Q42 – Leases

Show how a 4-year machine lease is presented in Fablon Ltd’s 20X4 financial statements, including profit or loss and financial position.

Question

Fablon Limited leased a machine on 1 January 20X4 for four years. Lease payments of GH¢40,000 are payable in arrears annually. The interest rate implicit in the lease is 10% and the present value of the minimum lease payments is GH¢126,760.

Required
Show how the lease agreement would be presented in the statement of profit or loss for 20X4 and the statement of financial position at 31 December 20X4. Notes to the financial statements are not required.

Answer

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Tags: Depreciation, Finance Costs, Financial Statements, IFRS 16, Lease Liability, Leases, Right-of-Use Asset
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q41 – Financial Reporting Standards and Their Applications

Show extracts from Cypress Limited's 20X4 financial statements for leases of a threshing and baling machine.

Question

On 1 January 20X4, Cypress Limited entered into the following lease agreements.

(a) Threshing machine
A lease of a threshing machine for 3 years from Alpha Ltd.
A deposit of GH¢2,000,000 was payable on 1 January 20X4 followed by 3 instalments of GH¢6,500,000 payable in arrears, commencing on 31 December 20X4. The present value of future lease payments is GH¢16,752,000 and the interest rate implicit in the lease is 8%.

(b) Baling machine
A lease of a baling machine for 5 years from Beta Ltd.
Cypress Limited has agreed to make 5 annual instalments of GH¢35,000 payable in advance, commencing on 1 January 20X4. The present value of future lease payments is GH¢150,000.
The interest rate implicit in the lease is 8.36%.

Required

Show the relevant extracts from the accounts of Cypress Limited for year ended 31 December 20X4.

Answer

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Tags: Depreciation, Finance Costs, Financial Statements, IFRS 16, Lease Liabilities, Leases, Right-of-Use Assets
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q40 – Financial Reporting Standards and Their Applications

Show lease presentation for a boat lease in Finley Ltd's financial statements for 20X4, including profit or loss and financial position extracts.

Question

On 1 January 20X4, Finley Ltd entered into an agreement to lease a boat. The initial measurement of the lease liability was GH¢36,000 and the term of the lease was four years. Annual lease payments of GH¢10,000 are payable in advance. The interest rate implicit in the lease is 7.5%.

Required
Show how this lease would be presented in the statement of profit or loss of Finley Ltd for the year ended 31 December 20X4 and the statement of financial position as at that date. Detailed disclosure notes are not required.

Answer

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Tags: Depreciation, Finance Costs, Financial Statements, IFRS 16, Interest rate, Lease Accounting, Statement of Financial Position, Statement of profit or loss
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q39 – Leases

Explain accounting for a 5-year machine lease with advance payments under IFRS 16 for Bela Ltd.

Question

The following information relates to the financial statements of Bela Limited for the year to 31 March 20X4.

On 1 October 20X3, Bela Limited entered into a 5 year lease for a machine from Narbona, agreeing to make payments every 6 months of GH¢29,500 beginning on the 1 October 20X3.

The present value of future lease payments at the commencement of the lease and before any payments are made is GH¢250,000 and the machine is believed to have a useful life of 5 years. The six-month interest rate implicit in the lease is 3.9%.

Required

Explain the correct accounting treatment for the above (with calculations where appropriate).

Answer

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Tags: Depreciation, Finance Costs, IFRS 16, Lease Liability, Leases, Right-of-Use Asset
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

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FR – L2 – Q58 – Financial Instruments

Calculate finance cost and SFP extracts for Bolgania Ltd’s 6% convertible loan stock for 20X4; comment on Accra Advisors’ advice.

FR – L2 – Q43 – Leases

Show extracts from Zest Pharma Plc's accounts for a 5-year lease with a 2-year extension option, including calculations for 20X4.

Title: FR – L2 – Q42 – Leases

Show how a 4-year machine lease is presented in Fablon Ltd’s 20X4 financial statements, including profit or loss and financial position.

FR – L2 – Q41 – Financial Reporting Standards and Their Applications

Show extracts from Cypress Limited's 20X4 financial statements for leases of a threshing and baling machine.

FR – L2 – Q40 – Financial Reporting Standards and Their Applications

Show lease presentation for a boat lease in Finley Ltd's financial statements for 20X4, including profit or loss and financial position extracts.

FR – L2 – Q39 – Leases

Explain accounting for a 5-year machine lease with advance payments under IFRS 16 for Bela Ltd.

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FR – L2 – Q58 – Financial Instruments

Calculate finance cost and SFP extracts for Bolgania Ltd’s 6% convertible loan stock for 20X4; comment on Accra Advisors’ advice.

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FR – L2 – Q43 – Leases

Show extracts from Zest Pharma Plc's accounts for a 5-year lease with a 2-year extension option, including calculations for 20X4.

You're reporting an error for "FR – L2 – Q43 – Leases"

Title: FR – L2 – Q42 – Leases

Show how a 4-year machine lease is presented in Fablon Ltd’s 20X4 financial statements, including profit or loss and financial position.

You're reporting an error for "Title: FR – L2 – Q42 – Leases"

FR – L2 – Q41 – Financial Reporting Standards and Their Applications

Show extracts from Cypress Limited's 20X4 financial statements for leases of a threshing and baling machine.

You're reporting an error for "FR – L2 – Q41 – Financial Reporting Standards and Their Applications"

FR – L2 – Q40 – Financial Reporting Standards and Their Applications

Show lease presentation for a boat lease in Finley Ltd's financial statements for 20X4, including profit or loss and financial position extracts.

You're reporting an error for "FR – L2 – Q40 – Financial Reporting Standards and Their Applications"

FR – L2 – Q39 – Leases

Explain accounting for a 5-year machine lease with advance payments under IFRS 16 for Bela Ltd.

You're reporting an error for "FR – L2 – Q39 – Leases"

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