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Hi Tutor,
May I know why the working for question 2 part iv pertaining the finance cost. I understand that the finance cost for the loan is effective interest of 10% *($20m-$0.5m) =$1.95m. But why did we get 20,000 *5%*6/12? I didn’t see anything mentioned on half year interest. How did you get the carrying amount of loan note as $20.45m? I don’t understand how to get 19500+950? How did we get the $950?
I don’t have the June 2010 paper available (where did you find it???!!!) but I may guess what’s happened. If I’m wrong with my guesses, post again with more detail.
First guess is that the loan was issued 6 months into the current year – hence the half year interest
Second guess is that the loan carries a coupon rate of 5% (you should have told me that!) and has paid 5% on the face value of the loan of $20,000 so has paid $1,000
But the effective rate is 10% and is calculated on $19,500 so the finance charge should be $1,950. But it’s only shown as $1,000 and hence the mysterious $950
Does that answer it? If not, post again but next time please give me all relevant detail
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