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When We Are To Calculate Interest On The Loan We Started From Year 1. Year 1 Interest = 100000 x 9%.
But When Measuring Amount Of Debt, Kaplan Has Substituted 75000$ Debt In Year 1.
Shouldn’t Year 1 Debt Be $100000, Year 2: 75000$ And So On As We Are Paying 9000$ Interest For Using $100000 In Year 1.
No. The SOPL’s are always prepared at the ends of years.
They take a loan now – at the start of the first year. So the interest in the first year is 10,000 (plus the overdraft interest).
At the end of the year they repay 25,000, so they start the second year owing 75,000. So the interest in the second year is 6,750 (plus the overdraft interest).
And so on….
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