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Interest Paid of $250 in the TB – the interest is not included in the draft Retained Earnings that we must adjust .
Is it always the case that if we had an interest account in the TB with a balance we can assume that it is not included in the draft profit or retained earnings in these type of questions ?
I am finding it difficult to know what to adjust by – the effective interest amount or the difference between the effective interest amount and the interest payment.
The loan notes are a financial liability, measured at amortised cost. The treatment for the cash paid (coupon interest) is that it reduces the value of the financial liability, the amount charged through profit or loss (retained earnings) is the effective interest.
If you are finding it difficult then I suggest that you watch the video in the teaching materials as it is covered in there.