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MikeLittle.
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- May 27, 2017 at 3:30 pm #388431
Hi my tutor i have a question relation to the above question
At 1 October 20X0, BK had an accrued interest payable balance of $12,000 in its statement of financial position. During the year ended 30 September 20X1, BK charged interest payable of $41,000 to its statement of profit or loss. Accrued interest payable at 30 September20X1 was $15,000.
Included in the interest charged to profit or loss for the year was an unwinding of the discount on a decommissioning provision of $5,000 and finance lease interest of $3,000. The finance lease is paid in cash annually in arrears.
What is the cash flow in respect of interest paid that will appear in BK’s statement of
cash flows for the year ended 30 September 20X1?A $30,000
B $33,000
C $36,000
D $38,000B/f at 1 october 20×0—12000
interest charged to p/l-41000
payment (5000)-unwinding discount on decommissioning provision
payment-(33000)
c/f15000Answer says that, unwinding discount on provision is an interest expense but not cash flow item.
This is because usually this interest cost is not paid to other party each year because all interest cost on provision or credited to provision and at the end it is totally paid.Like it is kind of the same as interest expense other than.
Is this answer of this question?Question this part is not clear because it says included charged interest to p/l despite it was mentioned 41000 so illogical from my point of view.Usually both 3000 and 5000 should be inside of 41000
Included in the interest charged to profit or loss for the year was an unwinding of the discount on a decommissioning provision of $5,000 and finance lease interest of $3,000.May 27, 2017 at 3:48 pm #388437The unwinding of a discount involves this double entry:
Dr Finance costs (in this case Interest Expense)
Cr ProvisionSo there’s no cash involved but it’s part of the $41,000 interest expense taken to Profit or Loss
Also within the $41,000 is the $3,000 finance lease interest expense but that WAS a cash flow so it is correctly included as part of the $33,000 cash outflow for interest paid
OK?
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