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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

Kiwi Co issued 500,000 $1 loan notes on 1 January 20X1 at par. The coupon rate is 5% with interest paid on 31 December each year. Kiwi's year end is 31 March. At 31 March 20X2, which amount appears as the accrued interest and what was the total finance cost in the year to 31 March 20X2?

The accrual is $6,250 and the finance cost is $25,000. A full year's interest at 5% on $500,000 is charged, but only the three months since the 31 December payment remain unpaid at the year end.

  1. AAccrual $6,250; finance cost $25,000Correct
  2. BAccrual $25,000; finance cost $25,000
  3. CAccrual $6,250; finance cost $31,250
  4. DAccrual $18,750; finance cost $25,000

Explanation

Annual interest is 500,000 x 5% = $25,000. Interest was paid on 31 December 20X1, so only 3 months (January to March 20X2) is accrued: $6,250. The year to 31 March 20X2 is a full 12 months, so the finance cost is $25,000. $18,750 is the 9 months already paid.

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