Marmite Ltd obtains a 750,000 loan which is repayable over the next five years. The bank has

Marmite Ltd obtains a £750,000 loan which is repayable over the next five years. The bank has agreed to accept the following repayments. The repayments are varied to match to periods when Marmite Ltd expect to have surplus future cash flows which can be used to reduce their debt. The repayment schedule is as follows. Marmite Ltd is aware that interest is usually paid up front and has proposed the following split in the agreed repayments for the preparation of the financial statements.

You are informed that the effective interest rate is 7.05%.
Required
a. Advise Marmite Ltd as to whether the above suggested charge for interest and capital is appropriate under International Financial Reporting Standards.
b. Calculate the interest charge that is applicable in each of the five years (under IFRS).
c. Prepare journals to post the transactions to the financial liability account (the loan account) for the five-year period.
d. Prepare the ledger account for the loan for the five-year period.

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End of Year End of Year 2 End of Year 3 End of Year 4 End of Year 5 Interest 20,000 £60,000 £60,000 £50,000 £40,000 Capital £10,000 £40,000 £90,000 £250,000 360,000 Total repayment £30,000 £100,000 150,000 £300,000 £400,000