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Greetings people.
I’d like to put forth the following question as it requires your kind and urgent attention. As such, I’ll be having my finals tomorrow for FA1 and your response is highly appreciated. The question is stated below:On November 1 2004, Leah took out a business development loan of $30,000. The loan is to be repaid in 10 equal six monthly installments. Leah made the first repayment of $3,000 on
1 May 2005.How should the outstanding balance of $27,000 be reported on Leah’s balance sheet at 31 May 2005?
A. Current liability: nil, Non-current liability: $27,000
B. Current liability: $6,000, Non-current liability: $21,000.
C. Current liability: $21,000, Non-current liability: $6,000
D. Current liability: $27,000, Non-current liability: nilAgain I thank you for taking the time to answer this question with a brief but compact explanation regarding the answer.
option A. he has paid the $3k in the first installment of 6 months (NOV 2004 to MAY 2005) which is the reporting period so the balance of $27k becomes his non-current liability automatically.
I would agree with you because that’s the same answer I picked, but sadly the answer provided for this question is B which has baffled me. I’ve failed to understand why that is the case.
Then $6k was recognized for the year as current liability but that brings up a question what about the $3k paid in same period? I actually thought it was B myself but not recognizing the $3 was why i settled for A. i guess we stick to liability per year then even after offsetting a part of the loan.
6 monthly installments of 3K
Loan Obtained: 1 Nov 04 – 30K
First installment: 1 May 05 (3K Paid, 27K left)
So ON 31 May 05 – 27K to be paid
Look at next installments WITHIN year aka before, or on, 31 May 06
These are:
1 Nov 05
1 May 06
These two payments will be considered CL (of 6K)
Rest will be NCL (of 21K) to be paid AFTER a year of 31 May 06Rest of the installments on:
1 Nov 06 <—– After 31 May 06
1 May 07
1 Nov 07
1 May 08
1 Nov 08
1 May 09
1 Nov 09Which gives us Option B
CL: 6K and NCL: 21K
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