On 1 January 20X1, Ondalis acquires the right to exploit a music catalogue, payable in a single instalment, 220,500, on 31 December 20X2, whereas the seller usually grants 45 days. The cash price equivalent is 200,000. Ondalis spreads the difference over the period of credit by applying the implicit rate of 5 % to the liability outstanding at the start of each year. Determine the cost of the right and the interest expense for 20X1 and for 20X2.
- Cash price equivalent
- 200,000
- Single payment on 31 December 20X2
- 220,500
- Implicit rate
- 5 %