[Question] ICB Exam Preperation

[Gremlin1708]

Hi there i am currently preparing for my next ICB exam in August but I am struggling with one question in my study guide and was wondering if anyone on this forum can maybe explain to me how to sole this problem...

Provide for the interest on the long term bank loan. Interest is calculated at 11% per annum. The liability was increased by 40000 on 1 April 2006. There were no other additional loans or repayments during the financial year, but twelve end of month installments of R1705 each are due to be repaid on the loan, starting at the end of February 2007.

Additional info:
Financial year is from 1feb to 31jan
Year in question 2007
Mortgage loan total on the pre adjusted trial balance is 186000

On the General journal they indicate an amount of 19726.67 for the interest on the long term bank loan. I would like to know how they got to this number. Not a single calculation I do gets close to that total!
Please help!!

[Blurock]

The figures does not add up. Can you give more information?

[CLIVE-TRIANGLE]

First, the interest is not compounded.

Months one and two the capital balance is 146,000 (186,000 - 40,000)

11%
146,000.00 1,338.33
146,000.00 1,338.33
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
Total interest 19,726.67

[Gremlin1708]

Yippeeee!!!

First, the interest is not compounded.

Months one and two the capital balance is 146,000 (186,000 - 40,000)

11%
146,000.00 1,338.33
146,000.00 1,338.33
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
186,000.00 1,705.00
Total interest 19,726.67

Thank you very much for your assistance.
I would just like to know how will i know weather it is with or without compound interest? I sat with this issue longer than 2 days before i started searching for help.

[CLIVE-TRIANGLE]

Haha, you're welcome.

It was a lucky guess I suppose, but compounding requires number of days etc, so exams more often than not opt for simple interest.

[Niquilene]

Okay, I also had the same problem, But my question is now, How did you get to the R 1,338.33? I would appreciate your help

[CLIVE-TRIANGLE]

It's 146,000 x 11/100/12 = 1,338.33

[Niquilene]

Thank you!!!! I appreciate it!