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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

On 1 January 20X1 Tamar Co issued 100,000 $1 loan notes at par, carrying a coupon (interest) rate of 6% per year, with interest paid annually in arrears on 31 December. Tamar's year end is 30 September. The loan notes are measured at amortised cost and issue costs were nil. What finance cost accrued liability should be included in current liabilities at 30 September 20X1?

The accrued interest is $4,500. The loan notes have been in issue for nine months to the year end and no interest has been paid, so 100,000 x 6% x 9/12 is accrued as a current liability and charged as a finance cost.

  1. A$4,500Correct
  2. B$6,000
  3. C$1,500
  4. D$0

Explanation

Interest runs from 1 January to 30 September, which is 9 months, none of it paid yet. Accrual = 100,000 x 6% x 9/12 = $4,500. $6,000 is a full year's interest, wrongly ignoring the time period. $1,500 is the 3 months from October to December, which falls in the next period.

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