[jeff]

Post by Another71.

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Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[jasbeerch]

Deferred tax liability arising from depreciation 25,000

DTL arised because company took more depreciation in tax return–> Taxable Income < Book Income.

So, in future, Taxable income > Book income….company will pay more taxes in future….then a Deferred Tax Liability is created.

Only 16,000 is the current liability portion

I hope my explanation helps you !!

[Determined CPA]

I still don't get it =(

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[excel monkey]

Deferred tax assets and deferred tax liabilities are classified based on the classification of the related assets or liabilities. When specific assets and liabilities cannot be identified, the DTA/DTL is classified based on when it is expected to reverse.

Since the problem states that the DTL was because of depreciation, the DTL would be classified as non-current since depreciable assets are reported as non-current.

FAR - 91
AUD - 88
BEC - 86
REG - 79

[Determined CPA]

Got it – thank you both!

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[rossk]

Oak Co. leased equipment for its entire nine-year useful life, agreeing to pay $50,000 at the start of the lease term on December 31, Year 1, and $50,000 annually on each December 31 for the next eight years. Oak paid $3,000 in initial direct costs at lease inception. The present value on December 31, Year 1, of the nine lease payments over the lease term, using the rate implicit in the lease which Oak knows to be 10% was $316,500. The December 31, Year 1, the present value of the lease payments using Oak's incremental borrowing rate of 12% was $298,500. Oak accounts for the finance lease under IFRS and uses straight-line depreciation. What amount should Oak report as finance lease asset on its December 31, Year 2 balance sheet?

finance lease asset is then amortized over the lease term/useful life of 9 years:

Annual depreciation = $319,500/9 = $35,500

On December 31, Year 2, after recording one year of depreciation, the finance lease asset will be reported as:

Finance lease asset, 12/31/Y2

=

Finance lease asset, 12/31/Y1 – Year 2 depreciation

=

$319,500 – $35,500

=

$284,000

My question is why don't we deduct 50000 from 319500 since we made a payment at the beginning of the lease

[Satchman]

@rossk

There are two components when you record the entry for Capital lease in the books of the lesse. Since, it is a capital lease you have to create an asset in the books, which you depreciate over the useful life or the lease term given the conditions/terms of the lease. The second component is you record the liability for the asset since you will be making payments on it.

1. The recorded asset will be depreciated each year and will reduce the asset value. Remember only depreciation reduces an asset, therefore you will only subtract depreciation every year from the ASSET.

2. The second component is the recorded liability which will be reduced by the payments you make (after taking out interest expense)

Example –

Entry on lease initiation

Leased Asset Dr. 319500

Lease Liability 319500

(Since, Payment made on initiation)

Lease liability Dr. 50,000

Cash Cr. 50,000

2nd year

Depreciation Expense 35000

Accumulated Depreciation 35000

Lease liability 23,050 (plug)

Interest Expense 26,950 [(319,500 – 50,000) x 10%]

Cash 50,000

I hope this helps.

Good Luck

[Satchman]

[Satchman]

[rossk]

Oh I got it thanks, It is not asking about the lease liability its asking about the leased asset. So asset will be recorded net of accumulated depreciation and it has nothing to do with the lease liability payments?

[Satchman]

Yes, Since this is a capital lease the lesse will have to record the asset in his books and depreciate it. and yes it will not have anything do with the lease liability. Along similar lines, Lease liability will only be reduced by your principal payments after factoring out the interest expense.

Good Luck !

[Anonymous]

Can someone explain why this answer is correct? This is question #1472 from Ninja MCQ

A company reported the following information for Year 1:

Net income 34,000.00

Owner contribution 9,000.00

Deferred gain on an effective cash-flow hedge 8,000.00

Foreign currency translation gain 2,000.00

Prior service cost not recognized in 5,000.00

net periodic pension cost

What is the amount of other comprehensive income for Year 1?

The answer given is $5k. I chose $15k. Why isn't the hedge and FX gain included? I thought they were a part of OCI. What am I missing?

[Anonymous]

The hedge and FX gain are included but you have to subtract the prior service cost not recognized.

8,000 + 2,000 – 5,000= 5,000

[Anonymous]

I think the explanation in the NINJA MCQ is incorrect.

[Determined CPA]

Why do you back out the prior service cost not recognized of 5,000.00? I would've picked 10,000 if that was an answer.

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[Satchman]

@CPA Title in 2015 @Determined CPA

Yes @CTM is right. I think the solution is plain and simple. its 5k

There are two gains here – Cash flow hedge and translation gain – 8k + 2k = 10k

There is one loss here – PSC not recognized (maybe because of improved benefits applied retroactivley and what not) – 5k

so the net OCI would be = 10k – 5k => 5k

The best way to do this is in a T-Account. Remember, don't just add up all items in OCI look at how they impact the OCI, Similar to that in the Income Statement, where we subtract the losses from gains.

Thanks for the posting the question, this is a good one.

Good Luck

[Author]

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