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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
Kindly also tell me, do the retained earnings of 4500 get cancelled on the MBO?
The 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.
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