New Zealand Gazette – 1992 – No. 95

Page 2178

✨ Financial Determinations and Calculations



2178

NEW ZEALAND GAZETTE

No. 95

C = 0

therefore the present value at 1 February 1991 =

A + B - C
-------
  1 + F

= $408,163

It will be found that the present value of the cashflows, by continuing to discount as shown above and in accordance with Determination G10B, is $1,192,343 (which figure is arrived at as demonstrated in the table below). This amount is the value of the property for the purposes of a yield to maturity accrual.

Date Amount Profit Total Present Value
Deposit 100,000 100,000 100,000
1/8/91 200,000 200,000 190,476
1/2/92 200,000 25,000 225,000 172,768
1/8/93 200,000 30,000 230,000 189,222
1/2/94 200,000 40,000 240,000 179,092
1,192,345

The amounts calculated using the yield to maturity method, Determination G3: Yield to Maturity Method will be expenditure incurred by the buyer of the property. The results are shown in a table below. These amounts are spread on a daily basis between income years using Determination G1A as follows:

Period End Cashflows Cumulative Discounted Cashflows Cumulative Discounted Cashflows Period Begin (z) Expenditure incurred (y - z)
1/2/95 (240,000) 240,000 228,571 11,429
1/8/94 (200,000) 428,571 408,162 20,409
1/2/94 (230,000) 638,162 607,773 30,389
1/8/93 (225,000) 807,773 769,308 38,465
1/8/92 (200,000) 994,308 946,960 47,348
1/2/92 $1,192,345 1,146,960 1,092,343 54,617
(100,000)
202,657

The yield to maturity rate (note that it is assumed no fees or other payments are made in relation to the financial arrangement) is 10.0%.

Period Ending Expenditure in respect of Period Days in Period Allocation to Income Year Days Amount Total Amount
1/2/95 11,428 184 1994/95 184 11,428 25,297
1/8/94 20,408 181 1993/94 58 6,539 63,068
1/2/94 30,389 184 1992/93 184 47,348
1993/94 123 36,912
1/8/93 54,618 182 1991/92 59 17,706 17,706
202,657 1,096 202,657 202,657

Note: The yield to maturity method will enable the calculation of an amount of income or expenditure for the final year to which a financial arrangement relates. However for the purposes of calculating the amount deemed to be income derived or expenditure incurred in the final income year it is necessary to apply section 64F of the Act - the base price adjustment.

On 1 February 1993 the profits of the company are $500,000.

The buyer therefore pays $50,000 to the purchaser. The buyer’s forecast of future payments remains as originally estimated. The method in Determination G25: Variations to the Terms of a Financial Arrangement is used to calculate expenditure incurred in the period and future income years. That is, if the changed cashflows had been known at the beginning of the arrangement the present value would be $1,215,019 and the yield to maturity rate is 10.0%.

The cashflows and expenditure incurred in each period are:

Cashflows Expenditure incurred
1/2/95 (240,000) 11,427
1/8/94 (200,000) 20,408
1/2/94 (230,000) 30,389
1/8/93 (200,000) 38,466
1/2/93 (250,000) 48,539
1/8/92 (200,000) 55,752
1/2/92 $1,215,019
(100,000) deposit
204,981*

The amounts would be spread between income years as follows:

Period Ending Expenditure in respect of Period Days in Period Allocation to Income Year Days Amount Total Amount
1/2/92 55,752 182 1991/92 59 18,073 18,073
1/2/93 48,539 184 1992/93 123 37,679 98,544
1/8/94 30,389 184 1993/94 58 12,326
1/8/94 20,408 181 1993/94 123 26,140 63,068
1/2/95 11,427 184 1994/95 184 13,869
1994/95 184 11,427 25,296
204,981 1,096 204,981 204,981

Using the formula in Determination G25 expenditure incurred in the 1993 income year is:

a = 0

b = expenditure incurred in the current and previous income years had the changes been known as at the Transfer Date.

= 18,073 + 98,544

= 116,617

c = 0

d = expenditure incurred in previous income years

= 17,706

Thus, a - b - c + d = -98,911

This amount is expenditure incurred by the issuer in the 1993 income year. If the remaining estimates are accurate the expenditure incurred in the respective income years would be as follows:

Year Amount
1992 17,706
1993 98,911
1994 63,068
1995 25,296
204,981

A party will be required to change an estimate or re-estimate at the end of any year where the actual cashflows and/or factual circumstances are such that the applicable estimate or re-estimate is no longer “fair and reasonable”. In default of any such estimate or re-estimate, the Commissioner may adopt or substitute his own estimate.

Thus, if the cashflows change from estimates in the 1994 year to an extent that the re-estimates are no longer fair and



Next Page →

PDF embedding disabled (Crown copyright)

View this page online at:


VUW Te Waharoa — PDF NZ Gazette 1992, No 95


NZLII — PDF NZ Gazette 1992, No 95




✨ LLM interpretation of page content

💰 Determination G17B: Deferred Property Settlements Denominated in New Zealand Currency (continued from previous page)

💰 Finance & Revenue
Income Tax, Property Settlements, Deferred Payments, Currency, Financial Arrangements, Yield to Maturity, Expenditure Calculation