Question 1 :
In recent years there has been a general trend for accounting standard setters to issue accounting standards that measure assets and liabilities at 'fair value'. Nevertheless, other valuation approaches (for example, historical cost, net realisable value and present value) are required for particular classes of assets and liabilities (as stipulated by particular accounting standards), with the result that we have a 'mixed approach' to measuring financial performance and financial position.
- Discuss two AASB accounting standards that utilise different measurement approaches.
- Describe the application of your chosen standards.
QUESTION 2: Long-term debt financing
Casino Corporation is building a $25 million office building in Las Vegas and is financing the construction at an 80 percent loan-to-value ratio, where the loan is in the amount of $20,000,000. This loan has a ten-year maturity, calls for monthly payments, and is contracted at an interest rate of 8 percent.
Required: Using the above information, answer the following questions.
a) What is the monthly payment?
b) How much of the first payment is interest?
c) How much of the first payment is principal?
d) How much will Casino Corporation owe on this loan after making monthly payments for three years (the amount owed immediately after the thirty-sixth payment)?
e) Should this loan be refinanced after three years with a new seven-year 7 percent loan, if the cost to refinance is $250,000? To make this decision, calculate the new loan payments and then the present value of the difference in the loan payments.
f) Returning to the original ten-year 8 percent loan, how much is the loan payment if these payments are scheduled for quarterly rather than monthly payments?
g) For this loan with quarterly payments, how much will Casino Corporation owe on this loan after making quarterly payments for three years (the amount owed immediately after the twelfth payment)?