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ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

On 1 January, Delta Co issued $500,000 of 6% loan notes at par. Interest is paid annually in arrears on 31 December. The year end is 30 September. What finance cost and accrued liability for interest should be recorded at 30 September?

Finance cost is $22,500 and the accrued interest liability is also $22,500. Annual interest of $30,000 is time-apportioned for the nine months since issue, and as no payment is due until 31 December, the whole expense is unpaid at the year end.

  1. AFinance cost $22,500; accrual $22,500Correct
  2. BFinance cost $30,000; accrual $22,500
  3. CFinance cost $22,500; accrual $0
  4. DFinance cost $30,000; accrual $30,000

Explanation

Annual interest is 500,000 x 6% = $30,000. Nine months have elapsed (January to September), so 30,000 x 9/12 = $22,500 is expensed. None has been paid, so the whole $22,500 is accrued. Charging a full year's interest ignores the issue date.

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