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Greetings dear Sir.
I was going through some SOPL exercises, and got confused.
I saw both “interest paid” ie cash paid figure from the Trial balance displayed in the question, and “interest charge” that I calculated from the Notes, added together in the workings within the answer page in order to find the Finance cost under SOPL.
I thought SOPL was under accrual system than cash system to consider even including “interest paid” figure side by side “finance charge” to arrive at the Finance Cost figure.
Please help remove my confusion. Thankyou very much.
The expense in the SOPL is always the interest charge for the period as opposed to just the cash actually paid.
That’s what I thought. So why is the “interest paid” from the Trial Balance included in the addition to arrive at the final finance cost within SOPL ?
Because the interest charge will be equal to the cash paid as adjusted for any accrual or prepayment of interest.
Could you please elaborate with an example ? I am not understanding these brief explanations.
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