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The 5% loan note was issued on 1st April 2009 at it’s nominal value of $20 m. The direct costs of the issue were $500,000 and these have been charged to admin exp.. The loan note will be redeemed on 31st March 2012 at a substantial premium. The effective finance cost of the loan note is 10% per annum. Loan note interest is paid for 6 months of $500.
Sir I am not getting how to get the premium value? or what should be mentioned in NON-CURRENT LIABILITY?
The $500,000 should be deducted from the $20,000,000 loan and leave $19,500,000 for presentation purposes
We need to account for the effective interest rate of 10%
10% of $19,500,000 is $1,950,000 and that adds to $19,500,000 to arrive at a loan liability of $21,450,000 inclusive of notional interest.
But $500,000 ha been paid! So the liability is $19,950,000
Better?
You keep doing that exercise (10% of $19,950,000 less $500,000 = $1,495,000
Add that to $19,950,000 and arrive at $21,445,000 to carry forward
Then 10% of $21,445,000 and so on until redemption date
Ok?
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