Step 10

Our opening balances for the debt on the assets were $130 for the current portion and $500 for the long-term portion. The current portion being the portion payable within the year.

Our payment is made in June 2000 and includes interest from January 1, 2000 to June 30, 2000 amounting to $30, or $600 X 10% X 6/12 months. We can accrue this amount increasing our payable at June 30, 2000 to $160. (This amount was paid in the year per our synoptic. This entry we make here will be eliminated by the payment we recorded in step one.)

  dr cr
Interest expense 30  
Bank loan - current portion   30

We also need to accrue the interest expense to the end of 2000. As this is payable within a year we will record it in the current portion of the Bank Loan. We owe $500 from June 30, 2000, the interest expense to accrue is therefore $500 X 10% X 6/12 months or $25.

  dr cr
Interest expense 25  
Bank loan - current portion   25

Also we need to reclassify the long-term portion of the bank loan that is payable within a year of December 31, 2000 to the current portion of the loan. We will reclassify $100 to the current portion.

  dr cr
Bank loan 100  
Bank loan - current portion   100

Lastly, someone has contributed $100 towards the repayment of the debt. The CICA Handbook says that contributions towards the repayment of debt should be recognized in accordance with the expense for which the debt was incurred. (4410.38) In the case of debt incurred for capital assets, the contribution would be recognized to match the amortization of the assets. We must defer the contribution and match it against the amortization of the related assets. We need to make the following entry:

  dr cr
Contribution for debt 100  
Deferred capital contributions   100

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