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Hi Sir, could you please help me with below question:
A company borrowed at $47 million on 1 Dec 2004 when the market and effective interest rate was 5%. On 30 Nov 2005, the company borrowed an additional $45 million when the current market and effective rate was 7.4%. Both financial liabilities are repayable on 30 Nov 2009 and are single payment notes, whereby interest and capital are repaid on that date.
Required: discuss the accounting for the above financial liabilities using fair value as at 30 Nov 2005.
Thank you very much
Hi,
I’ve not got the time to be able to write out a full answer for you with regards to the above question. You will have the answer in front of you, so please let me know what it is in the answer that you do not understand. I can then help out.
Thanks
The answer given is quite simple. It just says if the 2 loans were carried out at fair value, both the initial loan and new loan would have the same value, to be carried at $45. May I know why? Is it because the single payment to be paid in 2009 is similar?
If the loan is not repayable in a single payment, will the result change differently?
So sorry for the trouble caused. Your help is really appreciated.
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