- This topic has 1 reply, 2 voices, and was last updated 2 months ago by .
Viewing 2 posts - 1 through 2 (of 2 total)
Viewing 2 posts - 1 through 2 (of 2 total)
- You must be logged in to reply to this topic.
OpenTuition recommends the new interactive BPP books for December 2024 exams.
Get your discount code >>
Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Financial instruments
Dear Sir,
I have a question in the ACCA Study Hub
On 1 January 20X2, XYZ issued $1m 4% loan notes, at a discount of 5%. The loan notes are redeemable in five years at a premium of 10%.
What are the total finance costs that should be charged to profit or loss over the five-year term of the loan notes?
A.$350,000
B.$345,000
C.$250,000
D.$200,000
The answer is A.
However, in my thought, I will calculate the actual price at which the loan is issued = 95%*1,000,000 = 950,000. The price at which the loan note is redeemed is 110%*1,000,000 = 1,100,000
-> The total interest company XYZ has to suffer is = 1,100,000 – 950,000 = 150,000$
I want to ask if there is anything wrong in my understanding?
Thank you Sir!
Hi,
Yes, the error is that you have not accounted for the amounts paid each year over the five years of the instrument. If you include this then you would get the right answer.
Thanks