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rivision13.8/ 30 June 20×2 a company had $1m 8% loan notes in issue, interest being paid half-yearly on 30 June and 31 December.
on 30 September 20×2 the company redeemed $250,000 of these loan notes at par, paying interes due to that date.
On 1 April 20X3 the company issued $500,000 7% loan notes, interest payable half-yearly 31 March and 30 September.
what figure should appear in the company’s statement of profit or loss for interest payable in the year ended 30 June 20X3?
A $88,750
B $82,500
C $65,000
D $73,750
The answer is D.
July-September (1,000,000× 8% x 3/12)=20,000
October-March (750.000× 8% × 6/12)=30,000
April-June
( 750,000 ×8% × 3/12 )=15,000
(500,000 x 7% x 3/12)=8,750
*Total interest payable in S.P/L=73.750
1#anyone explain the answer please ,
2# & why we added 500 to 250 ?The year runs from 1 July X2 to 30 June X3.
The started the year with $1M loan notes but on the 30 September they repaid $250,000.
So the interest expense is 8% x $1M for the 3 months to 30 September, plus 8% x $750,000 for the 9 months from 1 October to 30 June. So a total of (8% x $1M x 3/12) + (8% x $750,000 x 9/12) = $65,000On 1 April they issued $500,000 7% loan notes.
So the interest on them from 1 April to 30 June = 3/12 x 7% x 500,000 = 8,750.So the total interest = 65,000 + 8,750 = 73,750.
they want expense for one year and this total interest for 15 month (ie more than one year)!
I wonder what in the question says that 500,000$ at par (or something like that )?and why calculating interest from 1-october to 30-june ,not from 1-october to 31-march only?
Nonsense – it is not the interest for 15 months!!
There are two separate loan notes. The 8% notes were in issue all year. The 7% notes were only in issue for part of the year.
The interest expense is the total interest between 1 July and 30 June. When the interest is actually paid is of no relevance at all when calculating the expense for the year.
Have you watched my free lectures for Paper F3?
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