I am having a conceptual problem here.
Shouldn't we deduct, 3000(loan repayment) from the profits remaining after dividends have been paid. It says cashflows... i know profits are not cashflows, but can you make the logic clearer?
thankyou
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proteus dec 2011
Kindly also tell me, do the retained earnings of 4500 get cancelled on the MBO?
7y ago#2The double entry for the repayment of a loan is Cr Cash and Dr Loan.
Repaying a loan does not affect profits at all!!
Interest payment reduce the profit, but not repayment of the principle.
And for your second question - yes. It is as though the old company finishes and a new one is created.
thankyou!
7y ago#4You are welcome :-)
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