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P2-D2.
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- February 12, 2022 at 1:16 am #648505
Dear sirs
I was practicing some examples from the study text after watching your video lectures. One thing that has been constantly hammering me here..
If we look at any test your understanding question e.g. test your understanding 3.1 & 3.2., I get all the calculations correct. However, whilst we add the “finance costs” to the opening balance and deduct the “cash paid” from it to arrive at a closing balance, Kaplan treats finance costs as an expense in the SPL and don’t show any entries in SPL for the cash paid amounts or for the repayment of liability. Further to this:
1. If the finance costs are our expense, should the cash paid not be treated as our income (could be OCI) since we deduct it to arrive at a closing balance?
2. Should the cash paid and repayment of liability at the end of the term not be shown on the SPL in theory at least for the examination?
I’m sorry for such a lengthy question but i couldn’t get my head around it for the last couple of days! I hope the question makes sense. Your help is greatly appreciated.
Many thanks
Mrudwang.February 20, 2022 at 9:12 am #648949Hi Mrudwang,
For the finance costs the entry would be DR Finance costs CR Financial liability. The payment of the coupon interest will be DR Financial liability DR Bank.
Use these entries in the application to the questions that you are looking at and hopefully it will help your understanding. If it doesn’t then please let me know and we can try and help you further.
Thanks
February 21, 2022 at 12:59 am #649012Thank you Chris, highly appreciated. I must say, great content and well explained videos!
February 24, 2022 at 9:03 am #649242Thank you, Mrudwang! That is very kind of you to say so.
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