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Could you please help me with the question from the TEXT book?
Cod Co sold goods to Eel Co on 1 January 20×2 for $200,000, payable on 31 december 20×3. Eel Co cannot return the goods. The relevant discount rate is 6%. What mount of revenue and finance income should be recognised in Cod Co’s statement of profit or loss for the year ended 31 December 20×2?
I understand the part where we calculate the revenue. But why do we have to calculate the finance income?
Thank you in advance.
The initial revenue will have been recognised at the present value of the sale, so $200,000 discounted by two years at 6%. The outstanding amount, receivable due then needs to be increased to the amount due in two years via an annual recognition of finance income, as effectively the purchaser has entered into a long-term credit purchase.