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Coupon rate versus Effective interest rate

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Coupon rate versus Effective interest rate

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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  • Author
    Posts
  • May 19, 2021 at 8:07 am #621024
    akka17bakka
    • Topics: 75
    • Replies: 71
    • ☆☆

    Hello Tutor,
    Could you kindly explain this schedule to me? What is the difference between interest receive and interest income here?

    Purchased 8%loan notes = $100000
    Effective rate = 10%

    Amortisation schedule:

    B/d $100000

    Interest received = $8000 ( 1000000*8%)

    Interest income = $ 10,000 (100000*10%)

    Amortisation – cash to be recived = 10,000- 8000 = $2000

    May 19, 2021 at 10:06 pm #621125
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6165
    • ☆☆☆☆☆

    Hi,

    The terminology used here is very confusing. The $8,000 is the interest income recognised through profit or loss. The $10,000 is the coupon cash receipt that reduces the outstanding loan notes balance.

    Thanks

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