A Accounting

Interest Expense , Accrued Interest and Loan ( video below)

At 30 June 20X4 a company had $2m 10% loan notes in issue, interest being paid half-yearly on 30 June and 31 December.

On 30 September 20X4 the company redeemed $500,000 of these loan notes at par, paying interest due to that date.

On 1 April 20X5 the company issued $1,000,000 9% loan notes, interest payable half-yearly on 31 March and 30 September.

What figure should appear in the company’s statement of profit or loss for interest payable in the year ended 30 June 20X5?

Answer

$
July – September 2,000,000 x 10% x 3/12 50,000
October – June 1,500,000 x 10% x 6/12 112,500
April – June 1,000,000 x 9% x 3/12 22,500
Interest Expense 185,000

Journal Entry

30 September 20X4

Dr. Loan………………………………………………..500,000

Dr. Interest Expense……………………………….50,000

Cr. Cash…………………………………………………………………550,000

1 April 20X5

Dr. Cash………………………………………………1,000,000

Cr. Loan……………………………………………………………..….1,000,000

30 June

Dr. Interest Expense (112,500+22,500)..135,000

Cr. Cash……………………………………………………………………112,000

Cr. Accrued Interest…………………………………………………..22,500


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