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Dear tutor,
“Holla Ltd has previously prepared accounts to 30 November, but has decided to change
its accounting reference date to 31 March to be coterminous with the corporation tax
financial year. The company’s forecast draft statement of profit or loss for the four?month
period ending 31 March 2024 is as follows:
….
The interest relates to Holla Ltd’s 6% loan notes. A payment of £24,600, representing six months’ interest, was made on 1 January 2024. At 31 March 2024, interest of £12,300 will be accrued, with the corresponding accrual at 1 December 2023 being £20,500. The loan notes were issued to fund the company’s trading operations.”I do not understand why they calculated the interest expense for the period like this:
Interest payable for trading purposes (£24,600 + £12,300 – £20,500)
Besides, the payment relating to 6 months period, why do they not account for the period that has nothing to do with the 4 months account period as per question?
Thank you!
£(24,600 + 12,300 – 20,500) = £16,400
£24,600 represents the cost for 6 months, so £4,100 per month.
The cost for a four month period therefore would be £4,100 x 4 = £16,400 which is correct.
If interests is paid six monthly, the amount accrued at 1/12/23 = 5 months, so £20,500.
The amount accrued at 31/3/24 = £3 months, so £12,300.
The amount paid during the four month period was £24,600, so the amount on the accruals basis is
£24,600 less the amount relating to y/e 30 /11/23 of £20,500 + the amount owed at 31/3/24 but not yet paid £12,300 = £16,400
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