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Hi sir, if let’s say a 5% $10 000 loan note was only issued half way through the year and has an EIR of 10%. What would the finance cost and carrying value at the end of the year be ?
10 000 + 500(EIR) – 250(Coupon)
= 10 250Therefore the finance cost is 500.
Carrying value at the end of the year is 10 250.And if on the trial balance, they show a loan note interest paid of $500,
Then there will be a prepayment of $250 under current assets right sir ?Finance cost will be $500 (10% x $10,000 for 6 months)
Why would there be a full year’s interest paid? I don’t understand that part of your scenario!
But if there were a full year’s interest paid, $250 would be the face rate interest and $250 would be added to the loan note liability
Double entries would be:
Dr Cash $10,000
Cr Loan $10,000Dr Finance costs $500
Cr Cash $500Dr Prepayments $250
Cr Finance costs $250Dr SoPoL $500
Cr Finabce costs $250
Cr Loan $250OK?
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