What is the amount of interest expense to be recognized

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Reference no: EM132661456

On January 1, 2018, Madali Company borrowed P5,000,000 from ABC Bank at variable rate of interest for two years. The principal loan is payable on December 31, 2019. The interest is payable on December of each year based on the prevailing interest rate at the beginning of the year.

To protect itself from fluctuation in interest rate, Madali Company entered into an agreement with XYZ Bank as the speculator to receive variable interest and to pay a fixed interest based on an underlying interest rate of 10% and notional amount of P5,000,000.

The interest rates on the loan are:

January 1, 2018 10%

January 1, 2019 12%

Problem 1: What is the amount of interest expense to be recognized in 2019?

Reference no: EM132661456

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