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Hello Tutor
I am using Kaplan exam kit.
I am not sure how to come up with the figures for NET INTEREST PAYABLE
could you please help me on this?
Thank you.
I only have the BPP Revision Kit, but because this is a past exam question I do have the original question and answer 🙂
They are paying 8% on their long-term borrowings, and (per note (vii) in the question) they are paying 7% on their short-term borrowings.
Note (vi) of the question says that the interest each year is based on the borrowings at the end of the previous year.
So the interest in 2005 is (580 x 8%) + (230 x 7%) = 62.5
The interest in 2006 is (580 x 8%) + (266 x 7%) = 65and so on 🙂
Thank you so much for your response.
Its clear but I am still confused as how did we get the figure of 266 of short term borrowings when initially it was 230
Do we need to add something to this?
Thank you
The short-term borrowings are the ‘missing figure’ to make the SOFP balance.
The question tells you what happens to all the other items on the statement, and note (vi) says that it is the overdraft (i.e. short-term borrowings) that is adjusted to make it balance.
The amount of short term borowings is the balancing figure, right?
If so, the reserves can only be calculated after adding the retained earnings and inorder to calculate the retained earnings, we need to determine the interest first. So without knowing the interest and retained earnings, how can we find the amount of reserves inorder to get the balancing figure of short term borrowings?
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