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Hello,
In the Tadeon question (Y/e 30 Sept 2006),
“TB :
Loan int paid (Dr) $1000
2% Loan note (note(i)) (cr) $50000Note (i):
The loan note was issued on 1 Oct 2005. It is redeemable on 30 Sept 2010 at a large premium (in order to compensate for the low nominal int rate). The Finance dept has calculated that the effective int rate on the loan is 5.5% p.a.”
In the Kala Question (Y/e 31 Mar 2006):
“TB:
Loan int paid (Dr) $2000
8%(actual and effective) loan note (note(iii)) (Cr) $50,000Note(iii):
The loan note was issued on 1 July 2005 with interest payable six monthly in arrears.”
I did all the calculations for both questions correctly but in the answer to these questions, the Loan figure which goes to NCL for Tadeon is $51,750 ( includes the interest accrued) and the Loan figure which goes to NCL for Kala is $50,000 (excludes the interest accrued on NCL) , but the interest accrued then goes in Current Liabilities. Why is it so?
Effective interest on the Tadeon loan is 5.5% and, on $50,000 that’s an annual amount of $2,750.
We are told $1,000 is paid so the remaining $1,750 is rolled up into the loan to give us $51,750 to carry forward as a non-current liability
You knew all that!
Now for Kala
Effective interest on the Kala loan is 8%, the same as the coupon rate and, on $50,000 that’s an annual amount of $4,000
We are told $2,000 is paid so the remaining $2,000 WILL be paid, in arrears, as per the question
I seem to remember that the Kala year end is 31 March so that $2,000 will be paid on 30 June, 3 months after the year end
We need therefore a current liability accrual of $1,000
The difference is because the actual and effective rates in Tadeon are different whereas the actual and effective rates in Kala are the same
OK?
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