On 1 January 20X1, a small brewery, Houblonne, buys the patented recipe of a beer from its inventor, who agrees to be paid 89,888 in two years, instead of the 30 days he usually allows. Paid immediately, the patent would have cost 80,000. Houblonne recognises interest at the implicit rate of 6 % on the outstanding liability. Record the acquisition (E1) and the closing entry at 31 December 20X1 (E2).
- Price if paid immediately
- 80,000
- Payment in two years
- 89,888
- Implicit rate
- 6 %