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Resources for Accountants

Present Value of Delayed Perpetuity [Video]

Present Value of Delayed Perpetuity

To value an infinite stream of cash flows (a perpetuity) that begins one year from today, you would divide the annual cash flow by the discount rate. But what if the perpetuity doesn’t begin until more than one year from now? This is called a delayed perpetuity.

For example, let’s say you are valuing an investment that will provide an infinite stream of $100 cash flows forever, but that those cash flows don’t begin until three years from today. Also assume that your discount rate is 5%. The first step to valuing this delayed perpetuity is to calculate the present value of a regular perpetuity:

PV of regular perpetuity = cash flow / discount rate = $100 / 0.05 = $2,000

The present value of the regular perpetuity is what the infinite stream of cash flows will be worth two years from now (it is two years and not three, because the formula for the present value of a regular perpetuity assumes the first cash flow occurs at the end of the first period). In this case, the infinite stream of cash flows will be worth $2,000 two years from now. The next step is to discount the $2,000 figure to the present value:

present value of delayed perpetuity = $2,000 / [(1 + r)^n] = $2,000 / (1.05^2) = $1,814.06

Here’s an alternative formula for calculating the value of a delayed perpetuity:

present value of delayed perpetuity = (cash flow / r) * (1 / [ ((1 + r)^n) ])

This formula yields the same value for the delayed perpetuity as the process we followed earlier:
present value of delayed perpetuity = (cash flow / r) * (1 / [ ((1 + r)^n) ])
present value of delayed perpetuity = ($100 / 0.05) * (1 / [1.05^2])
present value of delayed perpetuity = $1,814.06

0:00 Introduction
0:57 Example
2:18 Common mistake to avoid
3:00 Alternative formula

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Resources for Accountants

Overview of ASC 805 [Video]

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This is the introductory video for the third course of the three-part Business Combinations eLearning series. Now that you are familiar with the basic accounting rules and certain ASC 805 advanced issues, this course will apply that knowledge by walking through an example acquisition and requiring you to identify the proper accounting treatment. Take the course: https://www.gaapdynamics.com/product/business-combinations-application-of-asc-805/ Buy all three courses and save! https://www.gaapdynamics.com/product/asc-805-business-combinations/ Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individual-learning/ Subscribe to GAAP Dynamics to see more videos like these!

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Advanced Issues and Disclosures [Video]

This is the introductory video to our self-study eLearning course "Business Combinations: Advanced Issues and Disclosures." Check it out here: https://www.gaapdynamics.com/product/business-combinations-advanced-issues-and-disclosures/ This is the second course of the three-part Business Combinations eLearning series. Now that you are familiar with the basic accounting rules, this course dives deeper into more advanced business combination issues such as exceptions to general guidelines, noncontrolling interests, and measurement period adjustments. Learn more about GAAP Dynamics: https://www.gaapdynamics.com/ Check out our other online courses on the GAAP Dynamics Learning Library: https://www.gaapdynamics.com/individual-learning/ Subscribe to GAAP Dynamics to see more videos like these!

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How to Calculate the Right-of-use Asset [Video]

When the lessee capitalizes a lease, it doesn’t just record a liability; it also records a right-of-use asset. At the commencement of the lease, the right-of-use asset is calculated as follows:Initial measurement of lease liability + lease prepayments + initial direct costs + costs to dismantle/remove the asset or restore the site - lease incentives received from the lessor = right-of-use asset The right-of-use asset is then recorded on the lessee's statement of financial position and depreciated over the lease term.— Edspira is the creation of Michael McLaughlin, who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education accessible to all people.— SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS* http://eepurl.com/dIaa5z— LISTEN TO THE SCHEME PODCAST* Apple Podcasts: https://podcasts.apple.com/us/podcast/scheme/id1522352725* Spotify: https://open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc* Website: https://www.edspira.com/podcast-2/ — CONNECT WITH EDSPIRA* Website: https://www.edspira.com* Blog: https://www.edspira.com/blog/ * Facebook page: https://www.facebook.com/Edspira* Facebook group: https://www.facebook.com/groups/561316587899818//* Reddit: https://www.reddit.com/r/edspira* LinkedIn: https://www.linkedin.com/company/edspira— CONNECT WITH MICHAEL* Website: http://www.MichaelMcLaughlin.com* LinkedIn: https://www.linkedin.com/in/prof-michael-mclaughlin * Twitter: https://www.twitter.com/Prof_McLaughlin* Facebook: https://www.facebook.com/prof.michael.mclaughlin* Snapchat: https://www.snapchat.com/add/prof_mclaughlin*Twitch: https://twitch.tv/prof_mclaughlin * Instagram: https://www.instagram.com/prof_mclaughlin*TikTok: https://www.tiktok.com/@prof_mclaughlin