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P4 Question 3 June 2015

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › P4 Question 3 June 2015

  • This topic has 7 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • March 7, 2016 at 12:35 pm #304021
    Arishka
    Member
    • Topics: 10
    • Replies: 13
    • ☆

    In question 3 June 2015 , in computing the interest payable on the $30 mil loan , the stated interest is used.

    Why is this ?

    I thought the 8% would be used only in the annuity computation.

    Please assist.

    March 7, 2016 at 3:16 pm #304054
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54710
    • ☆☆☆☆☆

    Yes, but the reason the total of the annuity payments is more than the 30M is because there is interest being charge at 8% on the amount outstanding each year.

    The table in the examiners answer ‘proves’ this (the 2 outstanding at the end is simply because of rounding), and the interest each year will be an expense in the statement of profit or loss.

    March 7, 2016 at 4:12 pm #304079
    Arishka
    Member
    • Topics: 10
    • Replies: 13
    • ☆

    Why is 8% used to compute interest and the annuity amount ?

    March 7, 2016 at 4:31 pm #304084
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54710
    • ☆☆☆☆☆

    Because the second note (i) says that it is an 8% bond 🙂

    March 7, 2016 at 4:33 pm #304086
    Arishka
    Member
    • Topics: 10
    • Replies: 13
    • ☆

    Apologies if I am being silly , but i thought 8% bond meant that PMT is computed at 8% not the interest

    March 7, 2016 at 5:26 pm #304118
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54710
    • ☆☆☆☆☆

    No – it means the interest is 8% 🙂

    March 7, 2016 at 5:28 pm #304122
    Arishka
    Member
    • Topics: 10
    • Replies: 13
    • ☆

    ok thanks

    March 7, 2016 at 5:29 pm #304124
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54710
    • ☆☆☆☆☆

    You are welcome 🙂

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