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Hi Mike,
Hope you are keeping well
I have another query on Issue Costs in relation to a Financial Asset and/or Financial Liability.
Financial Asset: So my understanding at the moment is that if a loan is purchased by say a bank, then any issue costs incurred by the bank would be accounted for as follows: Cr Bank A/c ; Dr Financial Asset being the loan receivable. Then, assuming that the amortised cost model is used per IFRS 9 to account for the financial asset, the effective interest income rate will be applied…..
Financial Liability: So my understanding at the moment is that if a loan is issued by say a borrower, then any issue costs incurred by the borrower would be accounted for as follows: Cr Bank A/c ; Dr Financial liability being the loan repayable. Then, assuming that the amortised cost model is used per IFRS 9 to account for the financial liability, the effective interest expense rate will be applied…..
Am i correct to say that the “effective interest rate” includes the cost of the issue costs and hence the issue costs will be allocated as expense over the life of the financial asset/liability via the effective interest rate??
Thanks
LiamYes, it’s the interest rate that, when applied, will bring the asset / liability as at redemption date to its redemption value
Ok?
I think so Mike….my main query was if i was accounting for issue costs correctly in relation to financial assets/liabilities…So i take it that i am by your response ….in that the effective interest rate will include an element for the issue costs…Is this your understanding as well??
Thanks
Liam
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