Calculation formula of capital cost of long-term bank loans
Long-term loan is one of the main sources of funds for project investment, which refers to all kinds of loans borrowed by enterprises from banks or other financial institutions for more than 1 year (excluding 1 year). To calculate the capital cost of long-term borrowing, we must master the formula Kl=RI(l-T)/(I-F 1) and k- the capital cost of long-term borrowing; It-the annual interest rate of long-term loans; T- income tax rate; L- financing amount of long-term loans (loan principal); F 1- long-term loan financing expense ratio.
Accounting entries for long-term loans
1. Get a long-term loan:
Debit: bank deposit
Loan: Long-term loan-principal
Difference: Loan: Long-term loan-interest adjustment
2. Interest on long-term loans should be accumulated at the end of the period.
Borrowing: management expenses (interest on loans that do not meet capitalization conditions during the preparation period)
Construction in progress (capitalized interest)
Financial expenses (expensed interest)
Loan: interest payable (long-term loan interest with repayment of principal and interest on schedule)
Long-term loan-accrued interest (long-term loan interest with one-time repayment of principal and interest)
3. Pay long-term loan interest in installments.
Borrow: interest payable
Loans: bank deposits
4. Repay the principal and interest of long-term loans.
Borrow: Long-term loan-principal
-Accrued interest
Loans: bank deposits
What about the interest adjustment of long-term loans?
What are the advantages and disadvantages of long-term borrowing?
The advantages of long-term borrowing are fast financing speed and good loan flexibility.
1, enterprises can obtain funds faster by borrowing from financial institutions than by issuing securities;
2. When an enterprise borrows money from a financial institution, it can determine the time, quantity, interest and repayment time of the loan through consultation. If the situation of the enterprise changes during the loan period, it can also negotiate with financial institutions to modify the loan contract. After the loan expires, it can be extended on the premise of justified reasons.
What does the cost of capital mean?
1, the cost of capital refers to the price paid by enterprises to raise and use capital, that is, the opportunity cost of investment capital, which generally includes financing expenses and use fees.
2. The cost of capital is called opportunity cost, not the actual cost, but the income of other investment opportunities abandoned by investing in this project.