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Noreen Co issued loan notes with the coupon rate of 4% on 1 Jan 2018 at their face value of 4m. 200000$ of direct costs related to the issue were incurred and charged to profit or loss.
We are asked to make adjustment for draft retained earnings .
In the answer the issue costs of $ 200000 are added to the draft retained earnings , I didn’t understand why we added the cost to RE.- Topics: 53
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the direct costs associated with the issuance, such as legal fees, printing costs, underwriting fees, and other related expenses, are typically amortized over the life of the bonds. This means that these costs are spread out and deducted from the proceeds of the bond issuance over its term
So we added it back to RE?The issue costs are net off against the proceeds from the issue of the loan notes, they should not have been expensed through profit or loss. We therefore need to remove the expense of the issue costs from profit or loss which increases the profit and so also the retained earnings.
Thanks
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thanks!
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