Page 539 - F2 Integrated Workbook STUDENT 2019

Answers to supplementary objective test questions

5.4 $0.33

Diluted EPS = Notional earnings/Notional weighted average number of shares

Notional earnings for convertible bonds = Earnings + finance costs saved –
extra tax charged

Saving in finance costs = $4.65m × 0.07% = 0.325m

Extra tax = 0.325m × 20% = 0.065m

New shares from conversion = 5m/100 × 10 = 0.5m

Diluted EPS = 3.2 +0.325 -0.065/10 + 0.5

= 3.46/10.5 = $0.33

CHAPTER 6 – LEASES

6.1 D

Initial direct costs such as lease arrangement fees are included within the cost
of the right-to-use asset.

Finance lease categorisations are only applicable from the lessor’s perspective.
JS is the lessee within this lease arrangement. Finance lease categories are
irrelevant. Option A is not true.

The lease liability should be recorded at the present value of the remaining
lease payments. As the lease payments are in advance, the lease liability
includes one payment of $50,000 with a discount factor of 1 (= $50,000) and
four remaining payments of $50,000 to be discounted at 8% over 4 years.

The amount to be recorded for the lease liability = $50,000 + ($50,000 × 3.312)
= $215,600.

Option B is not true.

As ownership of the machine does not transfer at the end of the lease, the right-
to-use asset is depreciated over the shorter of the lease term or the useful
lifetime. The right-to-use asset will be depreciated over the 5 year lease term,
not the 7 year useful life. Option C is not true.

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