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[answered] Lota borrowed $15 million - incurring transaction costs of


Lota borrowed $15 million - incurring transaction costs of $100,000 to obtain the loan. The terms of the loan are that the entity pays interest of $900,000 on 31 December?each year and the loan is repayable at a substantial premium on 31 December 2015. The effective annual interest rate associated with this loan is 10%. The annual interest was paid on 31 December 2012 and Lota intends to retain the loan until its repayment date. The fair value of the loan on 31 December 2012 was 16 million.


Required: Show how the financial instruments will be treated in the financial statements of Lota for the year ended 31 December 2012.

 


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