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Giraffe Co's financial year ends on 30 November. On 10 November 2016 Giraffe Co bought a...

Giraffe Co's financial year ends on 30 November. On 10 November 2016 Giraffe Co bought a machine for €85,000. €5,000 cash was paid for the machine immediately and the rest was financed by taking a loan for €80,000. The loan will be repaid in 10 equal half-yearly instalments, with the first instalment falling due on 10 May 2017, the second instalment on 10 November 2017, etc.

How should this transaction be reported in Giraffe Co's statement of financial position as at 30 November 2016?

A non-current asset €                            [ Select ]                       ["85,000", "80,000", "5,000"]      

A non-current liability €                            [ Select ]                       ["64,000", "80,000", "72,000"]      

A current liability €                            [ Select ]                       ["16,000", "80,000", "8,000"]      

Plase provide your answers within 45 minutes!

Business   Accounting   
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Answer #1

Machine of €85,000 is a non- current asset.

Loan of €80,000 will be repaid in 10 equal half-yearly instalments, with the first instalment falling due on 10 May 2017, the second instalment on 10 November 2017.

Half-yearly instalment = 80,000/10

= €8,000

Two Half-yearly instalments of  €16,000 (payable within next 12 months) represent current liability.

Remaining portion of the loan i.e €64,000 (80,000 - 16,000) represents non- current liability.

Giraffe Co.

Statement of financial position

As at 30 November 2016

A non-current asset = €85,000  

A non-current liability = €64,000

A current liability = €16,000

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