SIYABONGA 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 liability 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 recognised against the liability initially recognised at fair value

Cf0 – (516,599,52 – 15,000,00) = – 501,599,52
Cf1 90,000
Cf2 90,000 + 237,500 = 327,500
Cf3 45,000 + 237,500 = 282,500
IRR = ? = 16,037558661%

1. General journal of Siyabonga Limited

DR

CU

CR

CU

2014
01/01 Bank (SFP) 525,000,00
Debenture liability (SFP) 516,599,52
Fair value adjustment (other income)(P or L) 8,400,48
Debenture liability (SFP) 15,000,00
Bank (SFP) 15,000,00
31/12 Finance cost (P or L) 80,444,32
Debenture liability (SFP) 80,444,32
CU501,599,52 x 16,037558661%
31/12 Debenture liability (SFP) 90,000,00
Bank (SFP) 90,000,00
Balance on Debenture liability account:CU501,599,52 + CU80,444,32 – CU90,000,00 = CU492,043,84
2015
31/12 Finance cost (P or L) 78,911,82
Debenture liability (SFP) 78,911,82
CU492,043,84 x 16,037558661%
31/12 Debenture liability (SFP) 90,000,00
Bank (SFP) 90,000,00
Balance on Debenture liability account:CU492,043,84 + CU78,911,82 – CU90,000 = CU480,955,66
Debenture liability (SFP) 237,500,00
Bank (SFP) 237,500,00
(CU500,000/2 x 95%)
Balance on Debenture liability account:CU480,955,66– CU237,500 = CU243,455,66
2016
31/12 Finance cost (P or L) 39,044,34
Debenture liability (SFP) 39,044,34
CU243,455,66 x 16,037558661%
31/12 Debenture liability (SFP) 45,000,00
Bank (SFP) 45,000,00
Balance on Debenture liability account:CU243,455,66 + CU39,044,34 – CU45,000,00 = CU237,500,00
Debenture liability (SFP) 237,500,00
Bank (SFP) 237,500,00
(CU500,000/2 x 95%)
Balance on Debenture liability account:CU237,500,00 – CU237,500,00 = R0,00

2. General ledger of Siyabonga Limited

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