Entity issues $1,000,000 6% loan notes on 1 January 20X4, incurring issue costs of $300,000. These loan notes have an effective rate of interest of 8% per annum. What is the finance cost to be shown in the statement of profit or loss for the year ended 31 December 20X5?
The correct answer is £55,680 but I cannot seem to get this.
I was wondering if you could help?
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Calculating financial costs to be included in SOPL
6y ago#1You have to deduct the issue of costs of 300,000.
So the opening carrying amount would be 700,000
The finance costs in the first year would be 6% of this number
Then deduct the cash paid which is 6% of 1 million
That will give you the carrying amount at the end of the first year
The finance cost in the second year will be 6% of this number
I have to say that I am very surprised to see issue costs which are 30% of the value of the loan- normally they would be 3%
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