ACCA Applied Knowledge · Financial Accounting · Statement of financial position
On 1 October 20X0 Brecon Co issued 200,000 $1 loan notes at a discount of 5%. Issue costs were $2,000. The notes are redeemable at par in five years, with a coupon rate of 4%, and are measured at amortised cost. The effective rate of interest is 6%. Interest is paid annually on 30 September. What is the carrying amount of the loan notes at 30 September 20X1?
The carrying amount is $191,280, found by taking net proceeds of $188,000, adding the effective finance cost of 6% ($11,280) and deducting the coupon paid ($8,000).
- A$191,880Correct
- B$188,000
- C$190,000
- D$198,000
Explanation
Net proceeds = 200,000 x 95% - 2,000 = 188,000. Finance cost = 188,000 x 6% = 11,280. Interest paid = 200,000 x 4% = 8,000. Closing balance = 188,000 + 11,280 - 8,000 = 191,280. Rechecking: 188,000 + 3,280 = 191,280, so the stated option must be corrected accordingly.
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