New Zealand Gazette – 2004 – No. 68

Page 1614

✨ Financial Arrangement Examples



1614 NEW ZEALAND GAZETTE, No. 68 10 JUNE 2004

expenditure is expenditure incurred in previous income years. The gross expenditure for the previous two years of the loan
facility

for the year ended 31 March 1989 = $6,154,231;
for the year ended 31 March 1990 = $9,458,697.

The total gross expenditure
= 6,154,231 + 9,458,697
= NZD $15,612,928

amount remitted is the amount of consideration remitted
= 0.

The base price adjustment is therefore:
–19,265,296 + 15,612,928 = –NZD $3,652,368.

This amount is gross expenditure of the corporate borrower in this income year in accordance with section EH 47 of the Act.

Example D: Variable rate financial arrangement

This example is similar to Example D in Determination G26: Variable Rate Financial Arrangements. This example illustrates
how this determination could be applied to a variable rate financial arrangement.

A New Zealand company purchased a USD note with a face value of $10,000 for a term of three years at a discount of 10%
($1,000). The interest rate is equal to market interest plus 1% pa and interest is payable half-yearly in arrears. There are no
fees. The interest rate is 10% in the first period after issue.

Assuming that this interest rate holds throughout the term of the notes, the yield to maturity is 14.2% pa, calculated at
half-yearly rests. The table below summarises the expected base currency payments and the relevant spot and forward
exchange rates.

t USD Cash Spot Fwd (0,t) US,I NZ,I
0 -9,000 0.6310 0.6310 0.05 0.04
1 500 0.6455 0.6371 0.05 0.04
2 500 0.6500 0.6432 0.05 0.04
3 500 0.6550 0.6494 0.05 0.04
4 500 0.6570 0.6556 0.05 0.04
5 500 0.6580 0.6619 0.05 0.04
6 10,500 0.6400 0.6683 0.05 0.04
14.2%

At the time of entering into the floating arrangement, the New Zealand company needs to make the following calculation:

t USD Cash Expected Cash NZD Expected Income
0 -9,000 -14,263
1 500 785 868
2 500 777 873
3 500 770 879
4 500 763 885
5 500 755 893
6 10,500 15,712 901
4,000 5,299 5,299
14.2% 12.2%

The base currency payments, calculated on the basis of the initial interest rate (i.e. 10%), are translated into expected NZD
payments on the basis of forward rates available at the time the company entered into the financial arrangement. The expected
NZD net amount of NZD $5,299, representing a yield of 12.2%, is spread using the yield to maturity method consistent with
Determination G3. The expected component of the gross income or expenditure for each half-year period over the term of the
arrangement is presented in the final column of the table above.\n
When payments are subsequently made, the actual NZD payments may differ from the expected NZD payments due to
fluctuations in both the interest rates and the exchange rates. The final outcomes are presented in the following table:

t Actual US,I Actual Cash USD Expected Cash NZD Actual Cash NZD Unexpected Income/Expenditure
0 -9,000 -14,263 -14,263 0
1 0.10 500 785 775 -10
2 0.11 500 777 846 69
3 0.09 500 770 687 -83
4 0.09 500 763 685 -78
5 0.08 500 755 608 -147
6 0.08 10,500 15,712 16,250 538


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Online Sources for this page:

VUW Te Waharoa — PDF NZ Gazette 2004, No 68


Gazette.govt.nz — PDF NZ Gazette 2004, No 68




✨ LLM interpretation of page content

💰 Multi-currency loan facility with early repayment (continued from previous page)

💰 Finance & Revenue
Loan Facility, Multi-currency, Early Repayment, Interest Rates, USD, GBP, DM

💰 Variable rate financial arrangement example

💰 Finance & Revenue
Variable Rate, Financial Arrangement, USD Note, Interest Rate, Exchange Rate