Understanding Interest Payments on Debentures: A Deep Dive

What amount of interest was paid by Crane plc in respect of its debentures during 20X5?

• A. £40,000
• B. £35,000
• C. £45,000
• D. £50,000

Answer: (A)

To determine the correct amount of interest paid by Crane plc for its debentures during the year 20X5, it is essential to understand how interest on debentures is typically calculated. Debentures usually pay interest based on a fixed percentage of the principal amount, often referred to as the nominal value or face value of the debenture. In this scenario, if the interest paid is stated to be £40,000, this figure may represent either the total interest expense for the year or the actual cash paid out towards interest payments. Given that the question asks specifically for the amount of interest paid, the £40,000 aligns with a situation where Crane plc has either consistently paid this amount as part of its debt servicing obligations or adheres to an established interest rate schedule on its debentures. To verify this figure, one would typically review Crane plc's financial records or notes regarding the terms of their debentures, including the interest rate and associated payment frequency. If, for instance, the total outstanding debentures were known alongside their interest rates, calculating the corresponding interest expense would directly support the figure of £40,000 as accurate. By understanding the underlying principles of interest paid on debentures and reviewing company financial statements

When it comes to mastering accounting concepts, one essential area of focus is understanding how interest on debentures is calculated and reported—especially for those gearing up for an accounting certification exam. You might be wondering, "What’s the big deal about a few numbers on a financial statement, right?" Well, trust me, these figures tell a story about a company’s financial health and management strategies.

Let’s take a cue from Crane plc's situation. The question arises: What amount of interest did Crane plc pay in respect to its debentures during 20X5? The multiple-choice answers—a guessing game if I ever saw one—offer options of £40,000, £35,000, £45,000, and £50,000. Confused yet? Let’s break it down.

The right answer is £40,000. But how did we get there? The heart of the matter lies in understanding how interest on debentures works. Typically, debentures pay interest based on a fixed percentage of the principal amount—yes, that nominal value you might recall from your earlier accounting classes. So, when we see that Crane plc has an interest payment of £40,000, it either indicates their total interest expense for the year or what they actually paid out in cash towards that expense.

Here’s the thing: if you’re preparing for your certification exam, knowing how to approach such questions can save you time and boost your confidence. Digging into the details a bit further, you’d want to check Crane plc’s financial records or closely examine the notes about their debentures. What’s the interest rate? Are payments made annually, semi-annually, or perhaps monthly? These factors directly influence the interest amount, and seeing the specifics can make the £40,000 figure feel more logical.

If you were to find the total outstanding debentures and their interest rates, you could easily back this figure up with some simple calculations. Just plug in the variables, and voila!—you can confirm that £40,000 is the correct figure, essentially ensuring you’re on the right track for your exams.

So, when it comes to answering questions on interest payments and debentures, remember to consider the context and details. It’s not just about memorizing numbers; it’s about understanding their significance in the financial landscape. Take this knowledge into your studies, and who knows, that understanding might not only help you pass your exams but could also serve you well in your future accounting career. Embrace the numbers, and let them illuminate the road ahead!