ExpertEasy2 marksMultiple Choice
ACCA · Question 28 · Financial Instruments
SECTION B - CASE 3: FinServe Solutions
FinServe Solutions Co is a fintech payment processor. The year-end is 31 March 20X7.
Regarding the factored receivables in the previous question (factored on 1 January 20X7 for $450,000 with recourse), the bank charges an effective interest rate of 8% per annum on the advance.
What is the finance cost to be recognized in the statement of profit or loss for the year ended 31 March 20X7?
SECTION B - CASE 3: FinServe Solutions
FinServe Solutions Co is a fintech payment processor. The year-end is 31 March 20X7.
Regarding the factored receivables in the previous question (factored on 1 January 20X7 for $450,000 with recourse), the bank charges an effective interest rate of 8% per annum on the advance.
What is the finance cost to be recognized in the statement of profit or loss for the year ended 31 March 20X7?
Answer options:
A.
$36,000
B.
$9,000
C.
$10,000
D.
$50,000
How to approach this question
Calculate interest on the liability amount ($450,000) for the period it was outstanding during the financial year (3 months).
Full Answer
B.$9,000✓ Correct
The cash received of $450,000 is treated as a loan. The finance cost is calculated using the effective interest rate on this liability for the period it is outstanding. From 1 January to 31 March is 3 months. Finance cost = $450,000 * 8% * (3/12) = $9,000.
Common mistakes
Calculating interest on the $500,000 receivables face value, or forgetting to pro-rate for 3 months.
Practice the full ACCA FR — Financial Reporting Practice Exam 1
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