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Hello!I was working through the single entity financial statement preparation and came across this problem.
The question basically can be rephrased as that there is this 5% $50000 loan note, market rate 8%, and the initial financial liability component is correctly calculated as $45950, what is the finance cost in the first year?
The answer states that the finance cost is 45950*8%-50000*5%=3676-2500=1176.
But wait, finance cost can be offset by payment??! I am utterly confused. Isn’t it supposed to be just 3676 and the 2500 goes like Dr. Loan note Cr. Interest payable and has nothing to do with finance cost?
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