Chapter 9 - Loan Relationships

Question 1

Definition

Answer 1

A company has a loan relationship is it owes, or is owed, interest in relation to a transaction involving the lending of money

Question 2

Types of Income and Expenses

Answer 2

LR income (credits) and expenses (debits):

• interest payable and receivable
• costs to issue the debt
• debt collection costs
• pre-loan and abortive expenses (cancellation fees or early redemption penalties)

Question 3

Trade Related LR

Answer 3

Trade related LR: if the loan is for trade purposes, any associated income and expenses would be included in the calculation of trading profits.

Question 4

Trade Related Examples

Answer 4

Funds used to generate income, fund working capital, loan to buy stock used in trade, loan to purchase an office or warehouse used in trad

Question 5

Non-Trade Related LR

Answer 5

If loan is non-trade, the income and expenses are no part of the trading profits. Income needs to be deducted from the profit per the accounts figure and expenses are not allowable, thus are added back

Question 6

Non-Trade Examples

Answer 6

Loans used to buy an investment property, loans to buy shares in a subsidiary, loans to and from other group companies