[ga6toqda]

Hi,

I can’t understand why not always the full interest amount is recorded in P/L account. I will use another example:
”
On 1 April 20X3, Xtol issued a 5% $50 million convertible loan note at par. Interest is payable annually in
arrears on 31 March each year. The loan note is redeemable at par or convertible into equity shares at the
option of the loan note holders on 31 March 20X6. The interest on an equivalent loan note without the
conversion rights would be 8% per annum.

Answer:

Liability component b/d 1.4.20X3 45,950
Effective interest (45,950 × 8%) 3,676
Cash coupon paid (2,500)
Liability component c/d 31.3.20X4 47,126
Adjustment required:
DR Finance costs (3,676 – 2,500) 1,176 —> this amount has been included in P/L
CR Loan notes 1,176 ”

My question is why the recorded amount in finance cost is net (interest expense – actually paid interest). Where is the difference once the entire amount is recorded in P/L and in another example only the net amount?

[ga6toqda]

I don’t know how to show you the example in Study Text if i can’t type it. The transaction there is:

Dt Revaluation surplus
Ct Disposal Account

It’s ridiculous to have wrong example in the Study text but obviously..I searched also in IAS 16 but there is no example. This case will be interesting about taxation view point because of income tax expenses. Is this temporary difference and the profit has to be increase with the amount of revaluation surplus when the assets is sold.
I now that this question is beyond F3 but it is interesting.

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