Question: A company issues 4% loan notes with a nominal value of RM20,000. The loan notes are issued at a discount of 2.5% and RM534 of

A company issues 4% loan notes with a nominal value of RM20,000. The loan notes are issued at a discount of 2.5% and RM534 of issue costs are incurred. The loan notes will be repayable at a premium of 10% after 5 years. The effective rate of interest is 7%.

Required:

1. What amount will be recorded as a financial liability when the loan notes are issued?

2. What amounts will be shown in the income statement and Statement of Financial Position for Year 1 until Year 5?

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