JACOBUS LIMITED

Calculations

Date of cash flow CU
01/01/2014 (CU500,000 x 105%) (525,000)
31/12/2014 (CU500,000 x 18%) 90,000
31/12/2015 (CU500,000 x 18%) 90,000
[(CU500,000 x 95%)/2] 237,500
31/12/2016 [(CU500,000 – CU250,000) x 18%] 45,000
[(CU500,000 x 95%)/2] 237,500

Calculation of the fair value of the investment on initial recognition

Cf0 0
Cf1 90,000
Cf2 90,000 + 237,500 = 327,500
Cf3 45,000 + 237,500 = 282,500
I/YR 14,5
NPV = ? = 516,599,52

Calculation of “i” (the effective interest rate) as the present value changed due to the CU15,000 transaction costs that must now be capitalised to the amount initially recognised for the investment

Cf0 – (516,599,52 + 15,000,00) = – 531,599,52
Cf1 90,000
Cf2 90,000 + 237,500 = 327,500
Cf3 45,000 + 237,500 = 282,500
IRR = ? = 13,03%

1. General journal of Jacobus Limited

DR

CU

CR

CU

2014
01/01 Investment in debentures (SFP) 516,599,52
Fair value adjustment (other expenses) (P or L) 8,400,48
Bank (SFP) 525,000,00
Investment in debentures (SFP) 15,000,00
Bank (SFP) 15,000,00
31/12 Investment in debentures (SFP) 69,267,42
Finance income (P or L) 69,267,42
CU531,599,52 x 13,03%
31/12 Bank (SFP) 90,000,00
Investment in debentures (SFP) 90,000,00
Balance on Investment in debentures account: CU531,599,52 + CU69,267,42 – CU90,000,00 = CU510,866,94
2015
31/12 Investment in debentures (SFP) 66,565,96
Finance income (P or L) 66,565,96
CU510,866,94 x 13,03%
31/12 Bank (SFP) 90,000,00
Investment in debentures (SFP) 90,000,00
Balance on Investment in debentures account: CU510,866,94 + CU66,565,96 – CU90,000 = CU487,432,90
Bank (SFP) 237,500,00
Investment in debentures (SFP) 237,500,00
Balance on Investment in debentures account: CU487,432,90 – CU237,500 = CU249,932,90
2016
31/12 Investment in debentures (SFP) 32,566,26
Finance income (P or L) 32,566,26
CU249,932,90x 13,03%
31/12 Bank (SFP) 45,000,00
Investment in debentures (SFP) 45,000,00
Balance on Investment in debentures account: CU249,932,90 + CU32,566,26 – CU45,000,00 = CU237,499,16
Bank (SFP) 237,500,00
Investment in debentures (SFP) 237,500,00
Balance on Investment in debentures account: CU237,499,16 – CU237,500,00 = (R0,84) (rounding)

2. General ledger of Jacobus Limited

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