Homework Answers
Solution:
Principle Amount=$42,000
Borrowed on 1-Oct
Time=1 year
Interest=6% pa
1) Amount of interest recognized in year 1 financial statement=Principal*Rate*Time/100
=42,000*6/100*3/12
=$630
Note: It is being assumed financial statement is prepared on 31december every year.
2) Amount of Interest recognized in year2 financial statement= 42,000*9/12*6/100
=$1890
3) Cash flow from operating activity in year 1
| Particulars | Amount | Amount |
| Net Profit before tax | - | |
| Adjustment for | ||
| Interest Paid | 630 | |
| Cash flow from operating activities | 630 |
Cash flow from operating activity in year 2
| Particulars | Amount | Amount |
| Net Profit before tax | - | |
| Adjustment for | ||
| Interest Paid | 1890 | |
| Cash flow from operating activities | 1890 |
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