Please can you tell me why the calculation does not include the issue costs of 1 million and why we calculate the difference between the two rates and not just use the effective as we did in previous examples. Thanks.
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7 Loan interest / preference dividends Question 5
The above question is from the mini exercises..
1) Because the issue costs are debited to the loan account itself
2) Because that's what we're told to do - it's the rule!
Thanks for 1 above. I still don't understand 2 as we have just used the effective rate in Q3. How does Q3 differ from Q5 apart from the issue costs?
We used both rates in question 3!
800 represents 6/12 x 2% x 80,000.
The effective rate is 6%.
6% x 80,000 for half a year is 2,400.
800 has been paid
So we need to accrue a further 1,600
Ok?
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