Lambda Ltd issues loan notes of €120,000 on 1 January 2060. Redemption is to take place...
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Accounting
Lambda Ltd issues loan notes of €120,000 on 1 January 2060. Redemption is to take place on equal terms, four years later. The company decides to put aside an equal amount to be invested at 5% which will provide €120,000 on maturity. Tables show that €0.232012 invested annually will produce €1 in four years’ time.
Required: Write a narrative report detailing:
- The annual investment required.
- The accounting treatment for the sinking fund.
- The implications for the company’s financial statements.
- The steps taken each year to ensure compliance with the redemption plan.
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