Question

Present your calculations and answers to the following cases and identifying the relevant considerations and main measurement criteria, both for IFRS and US GAAP, applicable to each situation:

Fairclough plc borrowed $10 million from a bank on 1/Jan/2011. The fee of $100,000 was charged by the bank which was paid by Fairclough plc at the inception of the loan. The terms of the loan are:

Interest:

1) Interest of 6% until 31/Dec/2013

2) Interest droupping to 5% from 31/Dec/2013 to 31/Dec/2015

Repayment Schedule

1) Repayment of 5% million on 31/Dec/2013

2) Repayment of 5% million on 31/Dec/2015

interest is paid annually in arrears.

The effective yield on the loan is 6.07%

Required to answer:

a) what is the total finance cost on the loan over the five year period ( under IFRS and US.GAPP separately)

b) What will be reflected as a liability in the financial statement for each 31/Dec year-end and what interests costs will be recognized in the statement of comprehensive income? ( under IFRS and US.GAPP separately)

Answer 1