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Questions 3 and 4 in the BPP revision guide im really thrown out on how the assets and liabilities interest and return are treated.
Just wondering if anyone else has the same issue.
I’m deducting the interest from the return of assets to get my net figure but question 3 and 4 seem to deduct the return from the interest.
Doesn’t make sense to me, surely you deduct your liability of interest from your return on asset. I’m sure that’s what was done in the example.
I’d stop trying to think about it as adding/subtracting, use debits and credits instead. Also don’t net the interest income and expense, treat them separately.
In Q3, interest expense is 10% of the $120m (110 + 10), and this is debited through profit or loss. If you want to think adding/subtracting then this is added to the expenses already recorded (service costs). The interest income is then 10% of the $150m, and this is credited through profit or loss. Again, this is then subtracted from the expenses already recognised. The key difference here in this question is that the interest income is larger than the interest expense, and hence the difference from the examples previously seen,
Based on this, see if it then helps you understand Q4. If it doesn’t then please let me know.