STATEMENT OF CASH FLOWS

CLARION
The following notes are also relevant.
(1) On 31 March 20X5, one quarter of the 8% loan notes were redeemed at par and six
months’ outstanding loan interest was paid. The suspense account represents the
debit entry corresponding to the cash payment for the capital redemption and the
outstanding interest.
(3) The right?of?use plant was acquired on 1 April 20X4 under a five?year lease with an
initial deposit of $2.3 million and annual payments of $1.5 million on 31 March each
year. The present value of the annual payments under the lease (excluding the initial
deposit) at 1 April 20X4 was $5.7 million, the lease has an implicit rate of interest of
10%, and the right?of?use plant has been correctly capitalised. The lease liability in the
trial balance above represents the initial liability less the first annual payment
SOLUTION
Lease liability
Balance b/f Interest at 10% Paid Balance c/f
$000 $000 $000 $000
Year to 31 March 20X5 5,700 570 (1,500) 4,770

Elimination of suspense account
$000
Cash cost of loan note redemption (20,000 × 25%) 5,000
Six months’ interest on loan note (20,000 × 8% × 6/12) 800
––––––
5,800
STATEMENT OF CASH FLOWS
Cash flows from financing activities
Redemption of loan notes (W5) (5,000)
Repayment of lease liability (2,300 + (1,500 – 570)) (W5) (3,230)

Good day,Please i don’t understand why the 6 months interest settled on redemption of the loan(800) was not included in the financing activities and why 570 was deducted from the cash paid on the lease in the year(1500) in the financing activities.I’ll appreciate if you can explain better