During 1994 an employee borrowed £10,000 from the firm where he worked at a simple interest rate of 10% per annum, fixed for the three years over which the loan was to be repaid in equal monthly installments.
On 1 January 1995, the employee had paid £100 interest in advance. On 31 December 1995, the employee was in arrears with his interest payments to the extent of £300.
The figure for interest receivable on this loan in the firm’s profit and loss account for 1995, is:
Select ONE answer:
- £850
- £1,000
- £1,150
- £1,250
Show your workings to arrive at your answer, and explain and justify your reasons:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 2
- Not correct
- Correct – In accordance with the accruals concept, the income figure to be shown in the profit and loss account is the income earned during the period covered by the profit and loss account, irrespective of whether received or not 2 £10,000 * 10% = £1,000
- Not correct
- Not correct
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