(b) Kappa prepares financial statements to 30 September each year. During the year ended 30 September 2016 Kappa entered into the following transactions:

(i) On 1 October 2015, Kappa made an interest free loan to an employee of $800,000. The loan is due for repayment on 30 September 2017 and Kappa is confident that the employee will repay the loan. Kappa would normally require an annual rate of return of 10% on business loans (5 marks)

Required:
Explain and show how the above transactions would be reported in the financial statements of Kappa for the year ended 30 September 2016.

Note: The mark allocation for part (b) is shown against each of the three transactions above.