Deferred payment

Learning objectives

• Calculate the cost of a property acquired on deferred payment terms (cash price equivalent, with the difference recognised as interest expense).L2, L3
• Calculate, from the case data, the amount relating to deferred payment and justify the basis of calculation.L2, L3
• Record the entry relating to deferred payment and state its effect on the financial statements.L2, L3

Normative references

• IAS 40 §24Deferred payment: cost is the cash price equivalent; the difference between this amount and the total payments is recognised as interest expense over the period of credit.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• An investment property is bought with settlement deferred by two years, beyond normal credit terms. How is the difference between total payments and the cash price equivalent accounted for?L2
• Lormel acquires an investment property. It will settle {deferred_amount} in two years, with no interim payment. The annual discount rate reflecting the credit granted is {rate} (case data). Calculate the cash price equivalent and the total interest to be expensed over the period.L3
• Marvel acquires an investment property and undertakes to pay {deferred_amount} in three years. The cash price equivalent, after discounting, is {cash_price} (case data). Record the initial recognition entry.L3