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Quincy issued a 25% million 6% loan on 31 October 2013. Issue costs were 1 million. Interest paid annually on 30 September each year. The loan will be redeemed on 30 Sep.2016 at a premium which gives an effective interest rate on the loan of 8 %.
My answer.
Year 1 1500(6%) x 0.92(8%) = 1380
2 1500(6%) x 0.86(8%)=1290
3 26500(6%) x0.79(86%)=20935Realised loan on 30Sept.2014 23605 +(23605×10%)=25965.5
Finance cost for 2014 is 1380
Is my answer true?
Than in advance!You can see for yourself whether your answer is true – check it against the printed solution!
What is a ‘25% million 6% loan’?
Where does 86% fit in? ‘3 26500(6%) x0.79(86%)=20935’
Where has 10% suddenly come from? ‘23605 +(23605×10%)=25965.5’
How can this be correct? ‘Realised loan on 30Sept.2014 23605 +(23605×10%)=25965.5’ when the face value of the loan itself is only 25% million?
No, your answer is not correct!
2 careless mistakes cause by, I presume, mis-typing
1 careless mistake using 10% instead of 8%
1 careless mistake (what’s a ‘realised loan’?) showing a liability greater than the face value of the loan
Carry these errors into the exam room and you’ll make life very difficult for yourself
From 23,605 + (23,605 @ 8%) you need to deduct the 1,500 that is paid so the loan to be disclosed on the statement of financial position is 23,993
OK?
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