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?
Ask the Tutor ACCA FR
Loan note
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?
So what is the premium thing?
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?
But we are not going to show it any where ri8?
That's right! The obligation builds up over the period of the
loan
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