Question

Entity A invested $12,000 in 10% loan notes. The loan interest is paid in arrears. The...

Entity A invested $12,000 in 10% loan notes. The loan interest is paid in arrears.

The loan notes are repayable at a premium after 3 years. The effective rate of interest is 12%.

Entity A intends to collect the contractual cash flows which consist solely of repayments of interest and principal.

REQUIRED:

(1) Measure the interest revenue which recognized in the Statement of Profit or Loss of year 3.

(2) Measure the loan notes which recognized in the Statement of Financial Position of year 2.

Homework Answers

Answer #1

Ans. Calculation of Net Interest Income and balance at end of each year.

Particulars Year1 Year2 Year3
Opening Balance (A) 12000 12240 12509
Add:Interest Income p.a @ 12% of A   1440 1469 1501
Less:Interest Receivable (12000*10%) (1200) (1200) (1200)
Less:Redemption value - - N.A
Closing Balance 12240 12509 N.A

1. Interest revenue recognised in profit n loss of 3rd year= 1501

2. Loan notes recognized in the Statement of Financial Position of year 2=12509

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