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Hi I was going through this question when I came across this adjustment and don’t know how to solve it
On 31 March 2015, one quarter of the 8% loan notes were redeemed at par and six months’ outstanding loan interest was paid. The suspense account represents the double entry corresponding to the cash payment for the capital redemption and the outstanding interest
According to the trial balance, the items related to this adjustment are:Suspense account 5,800
8% loan notes 20,000
Loan note interest paid 800What about ….
Dr 8% Loan Notes $5,000
Dr Finance Costs $ 800
Cr Suspense Account $5,800Does that do it for you?
Not really 🙁 could you please go into a little more detail about how we got the 5000 and how we’ll treat these in SOFP and Income statement.
Thanks a lot.
According to the trial balance in the question, there are $20,000 8% Loan Notes
Note ii states that ” one quarter of the 8% loan notes were redeemed”
What’s one quarter of $20,000?
That $5,000 worth of loan notes has been redeemed – so we will treat it neither in the SoFP nor in SoPorL – that $5,000 is history! It’s gone!
The $800 is taken out of Suspense Account and added to the $800 Finance Charges shown in the trial balance given in the question
Better?
I have another question:
I came across this inventory adjustment and its confusing.
The inventory of Highwood was not counted until 4 April 2011 due to operational
reasons. At this date its value at cost was $36 million and this figure has been used in the cost of sales calculation above. Between the year end of 31 March 2011 and 4 April 2011, Highwood received a delivery of goods at a cost of $2·7 million and made sales of $7·8 million at a mark-up on cost of 30%. Neither the goods delivered nor the sales made in this period were included in Highwood’s purchases (as part of cost of sales) or revenue in the above trial balance
Inventory according to the trial balance is 36000According to the solution:
Per trial balance 36000Hi Mike,
Hope it’s alright to bring an old thread up.
With regards to the $5,000 cash used for the redemption of loan notes, I included that in the administrative expenses in SOPL. The answer did not do this- can you please explain to me why shouldn’t I include that sum in administrative expenses, or in fact, in the SOPL?
It’s paying off a liability! It’s not an expense. The credit entry represents the reduction of an asset (cash) and the debit entry represents the discharge of a liability (the loan)
Ok
Arooba, I apologise for failing to reply to this last post of yours from May 19 – I cannot understand how or why I missed it.
Hope I’m not too late 🙁
I get it now, and if there are any penalty costs on early redemption, only the penalty cost should be charged to SOPL, is that correct? Can I classify it as an administrative expense if the question doesn’t specify the cost classification for that?
OK, thank you 🙂 Wrong classification of costs would cost me a mark, right?
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