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in the sept specimen exam an interest amount of 1,800 (6%) was shown on the draft statement of profit and loss, the effective amount works out to be 2,610 (9%) which is then deducted from the retained earnings to give the adjusted retained earnings. does this mean that the interest rate should be treated as an expense? if so then why are the incurred issue costs of 1,000 in the same example added to the retained earnings to avoid them being charged as an expense?
thanking you for all your help
Do you think it would be a good idea to tell me which question or are you expecting me to search it out for myself?
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oh apologies it is question 31 on the specimen exam sept 2016
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also in my original post i meant that 1800 was shown on the trial balance (this equated to 6%), then 2610 was deducted from retained earning to get to adjusted retained earnings (this equated to the effective interest rate of 9%). my question was in relation to the different treatment of finance costs and incurred costs. Apologies for my mistakes
This extract from IFRS 9 is worth learning:
“Initial measurement of financial instruments
All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs”
Here’s how the printed solution explains it:
“The issue costs should be deducted from the proceeds of the loan note and not charged as an expense
The finance cost of the loan note, at the effective rate of 9% applied to the carrying amount of the loan note of $29 million (30,000 – 1,000), is $2,610,000
The interest actually paid is $1·8 million. The difference between these amounts of $810,000 (2,610 – 1,800) is added to the carrying amount of the loan note to give $29,810,000 (29,000 + 810) for inclusion as a non-current liability in the statement of financial position”
You asked “my question was in relation to the different treatment of finance costs and incurred costs”
Do the above two extracts not answer that sufficiently? If not, post again
OK?
(And apologies are not necessary)
hello, I need some advice on loan note interest, it is a personal matter for loan notes that I have, I would like to pay someone for their expertise, could anyone assist me please, preferably a tutor?
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