FAC3703/201/1/2019 Tutorial Letter 2019/2021 Specific Financial Reporting FAC3703 Semester 1

Debentures (see comment at calculation [C4] ) [C4] - Concentration of interest rate risk on financial liabilities measured at amortised cost The company has no exposure to interest rate changes with regard to the finance lease liability at reporting date as the interest rate is fixed for the lease term. The company has no exposure to interest rate changes with regard to the debentures at reporting date as the interest rate is fixed. Concentration of liquidity risk on financial liabilities The exposure of the company’s financial liabilities to liquidity risk and the contractual repayment dates are as follows: Finance lease liability Debentures Less than 1 year Between 1 and 2 years Between 2 and 5 years 554 960 - The company manages its liquidity risk by ensuring that the maturities of its assets and liabilities match according to cash flow needs and that the company has adequate access to credit. Expected cash flow requirements are monitored with rolling cash budgets. CALCULATIONS C1. Step 1: Calculate interest rate implicit in the lease Inputs N 8 (2 payments per year x 4 years) PV (1 581 618) (1 568 000 + 13 168) PMT 242 480 FV 70 000 I ?? 11% per year FAC3703/2015 C1. Step 2: Calculate the lease liability and right-of-use asset Lease liability Present value of lease liability at inception of the lease (N= 8; PMT = 242 480; FV = 70 000; I = 11% p.a.; PV =) 1 581 618 Present value of lease payments not paid at lease commencement date 1 581 618 Right-of-use asset Initial measurement of the lease liability 1 581 618 Initial direct costs of the lessee - 1 581 618 Step 3: Prepare the amortisation table for R1 581 618 Date Instalments Interest at 11% p.a. Capital Closing balance R R R R 1 April 30 June 2017 (Year-end) - 30 September 494 155 492 1 426 126 31 March 083 30 June 2018 (Year-end) 30 September 017 31 March 30 June 2019 (Year-end) 30 September 31 March 30 June 2020 (Year-end) 30 September March 1 511 618 Interest to be disclosed in Profit before tax note: 1 581 618 x 11% (step 1) x 3/12 = 43 494 1 426 126 x 11% x 6/12 = 78 437 1 262 083 x 11% x 3/12 = 34 707 156 638 C2. Long-term and short-term portions of lease liability Short-term Long-term Total R R R Instalments a 484 960 b 880 Future finance costs c (119 530) d (108 560) (228 090) 296 790 a 242 480 x 2 = 484 960 b 242 480 x 4 = 969 920 + 70 000 = 1 039 920 c 34 707 + 59 896 + 24 927 = 119 530 d 24 927 + 39 259 + 14 041 + 14 041 + 16 292 = 108 560 Current financial year 6 OR R