ACC705 Corporate Accounting Proof Reading Services

Part A

In Response to Question 1

The Interest Rate implacable in this transaction is around 10.05%.

In Response to Question 2

The payment received when the contract was signed under Option B from Cometa ltd to Estrela Ltd was around $15,000. The Cometa Company preferred to go for immediate payment of the assets price.

In Response to Question 3

The significant financing component taken under the company and calculation was the net borrowing cost accounting and the rate considered for calculation of the significant amount was around 7%.

In Response to Question 4

Part B

In Response to Question 5

Estrela Financial position could be impacted under two scenarios of the project options provided:

Under Option A: The Estrela Ltd company financials could be impacted in this scenario where the Cometa Company would go under financing method for purchasing the assets. The Cometa Company will go under financing process through a four-year tenure-financing plan. The Cometa company if have missed some interest payments on its banks loans would be a problem for the Estrela company as it would state the company is going through a financial crunch and the series of payment lined for the assets could not be received by the company (Fuster and Willen 2017). The Estrela Company should make sure that the company it is financing with the asset must have a stable financial condition and must have good credibility and goodwill in the financial market in terms of the loans repayment schedules. The Financing Company will have to take certain necessary step in order to make sure that the financing amount done by the company is secured. Since the Cometa Company after one year of financing is having financial analysis difficulty in terms of failure and delay in payment of interest payments with the bank loan it owes the Estrela Company should take certain steps in terms of creation of provision and restructuring of debt. The same will allow the Estrela company allow financial flexibility and act better in a financial distress manner (Scharlemann and Shore 2016).

Under Option B:The option B under this scenario would not bring financial distress for the company, as the customer company would receive the payment for the assets in the initial year itself. The financial distress under which the customer company is going will not much be shown an effect on the Estrela Company. The only thing, which will affect the Cometa Company, is in terms of degrading goodwill and credibility of the company.

In Response to Question 6

The asset, which will be sold to the Cometa Company, will be sold at the price of $20,425 to the company at the year 4 and a profit of around 5,425 will be recognized in the income statement of the company (Nobes 2014). The following will be the procedure to follow with the Estrela Company financing that the Estrela Company will finance the loan amount of 15,000 and show the amount as loan payable to Cometa Company in which the company will pay around 7% of the loan outstanding amount. A total of 1,575 will be paid, as the Estrela Company will receive a financing cost (Reid, Carcello and Neal 2018). The Cometa Company will partly and equally repay the loan amount as shown in the table. The Estrela Company can lease the Asset to the Cometa Company over the four year term period (Francis et al. 2015). The Asset and the final year will be sold at the cost of 20,425 (22,000-1,575) and the profit of 5,425 will be recognized in the income statement in the year 4 (Andersson and Kostet 2016).

Reference

1. Nobes, C., 2014. International classification of financial reporting. Routledge.
2. Reid, L.C., Carcello, J.V., Li, C. and Neal, T.L., 2018. Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom.
3. Francis, B., Hasan, I., Park, J.C. and Wu, Q., 2015. Gender differences in financial reporting decision making: Evidence from accounting conservatism. Contemporary Accounting Research, 32(3), pp.1285-1318.
4. Andersson, D. and Kostet, J., 2016. Financial Credibility, Financial Constraints and Rule of Law: A quantitative study on international firms.
5. Fuster, A. and Willen, P.S., 2017. Payment size, negative equity, and mortgage default. American Economic Journal:Economic GrowthPolicy, 9(4), pp.167-91.
6. Scharlemann, T.C. and Shore, S.H., 2016. The effect of negative equity on mortgage default: Evidence from hamp’s principal reduction alternative. The Review of Financial Studies, 29(10), pp.2850-2883.