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Dear Tutor,
I have an example what I have got confused.
100000 at 4% loan on 1 Jan 2006
the following happened:
1 Jan – 1 May : 6% loan
1 July – 1 Sept 7% loan
What is the finance charge?Can you please explain me the answear and how did you get the answer as well?
(I am not really remember for the question exactly because it was an exam question.)
Thank you!
I cannot give you an answer without seeing the full question (and it is not a question from our exam).
You have not said what the year end is, or what the amounts of the 6% and 7% loans are.
For each loan you need to take the amount of the loan, multiply by the interest rate, and then multiply by the number of months falling into the business’s year divided by 12.
Custard creamies is an incorporated business which needs to raise funds to purchase plant and machinery. On 1 March 2005 it issues $150,000 10% loan notes, redeemable in 10 years time. Interest is payable half yearly at the end of august and Feb
How do you work this question out and what is the double entry for sofp
The year ended 31 December 2015
Since the loan has existed for 10 months, the total expense in the Statement of profit or loss is 10/12 x 10% x $150,000.
The only cash paid during the year will be the 6 months interest paid in August, and so there will be an accrual for 4 months interest, which will be 4/12 x 10% x $150,000, and this will appear as a liability in the Statement of Financial Position.
The double entries are not really relevant for the exam – it is not a double-entry exam.
However, when the cash is paid in August, the entry is Cr Cash Dr Interest expense.
At the end of the year, when the accrual is made, the entry is Dr Interest expense Cr Accrued Interest.
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