Calculating Simple Interest:
To calculate the simple interest, we use the formula:
Simple Interest = (Principal × Rate × Time) / 100

Given:
Principal (P) = $12,000
Rate of interest (R) = 6% per annum
Time (T) = 2 years

Using the formula, we can calculate the simple interest as follows:
Simple Interest = (12000 × 6 × 2) / 100
Simple Interest = (144,000) / 100
Simple Interest = $720

Calculating Compound Interest:
To calculate the compound interest, we use the formula:
Compound Interest = Principal × (1 + Rate/100) ^ Time - Principal

Given:
Principal (P) = $12,000
Rate of interest (R) = 6% per annum
Time (T) = 2 years

Using the formula, we can calculate the compound interest as follows:
Compound Interest = 12000 × (1 + 6/100)^2 - 12000
Compound Interest = 12000 × (1.06)^2 - 12000
Compound Interest = 12000 × 1.1236 - 12000
Compound Interest = 13483.2 - 12000
Compound Interest = $1483.2

Difference between Simple Interest and Compound Interest:
The difference between the simple interest and compound interest is the extra amount that needs to be paid when borrowing at compound interest instead of simple interest.

In this case, the difference is:
Compound Interest - Simple Interest = $1483.2 - $720
Compound Interest - Simple Interest = $763.2

Explanation:
When borrowing at 6% per annum simple interest for 2 years, the total interest paid would be $720. However, if the same amount is borrowed at 6% per annum compounded annually, the total interest paid would be $1483.2. Therefore, the extra amount that needs to be paid when borrowing at compound interest instead of simple interest is $763.2.

The reason for the difference in the amount is due to the compounding effect. In simple interest, the interest is calculated only on the principal amount. But in compound interest, the interest is calculated on both the principal amount and the accumulated interest from previous periods. This leads to a higher interest amount in compound interest compared to simple interest.

The compounding effect becomes more significant with longer periods and higher interest rates. It allows the interest to accumulate over time, resulting in a larger total interest payment.