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Page 8 Chapter 1- OT notes
Direct costs
may be included as part of the cost of the investment and comprise, for example,
• registration costs
• issue costsIsnt issue cost debt and equity are treated as per relevant standards.
Equity cost should be deducted from equity.And should not be part of Investment.
And same is about registration costs as IFRS 3
says (All other costs associated with an acquisition must be expensed )Acquisition costs
Costs of issuing debt or equity instruments are accounted for under IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement/IFRS 9 Financial Instruments. All other costs associated with an acquisition must be expensed, including reimbursements to the acquiree for bearing some of the acquisition costs. Examples of costs to be expensed include finder’s fees; advisory, legal, accounting, valuation and other professional or consulting fees; and general administrative costs, including the costs of maintaining an internal acquisitions department. [IFRS 3.53]Mike Please advise?
Now, when I read the revised IFRS3, I’m sure that it said that, whereas previously professional fees associated with an acquisition such as bank advisory fees and accountancy fees were capitalised into the cost of the investment, with effect from the revision, these costs were no longer to be treated as part of the cost of acquisition and should be expensed.
But that left the costs of issue of the shares / debt and registration costs as treatable as part of the acquisition. Maybe it’s time I re-read the IFRS.
If I get time within the very near future, I shall do that and come back to you. If you are correct, then it means that I need to revise the course notes so again, if you are correct, I have to thank you for pointing out the error of my ways
And sorry not to be able to give you a definitive answer immediately
Meaow – there follows a quote from the “Scope restriction” lifted from IAS 39:
“IAS 39 applies to all types of financial instruments except for the following, which are scoped out of IAS 39: [IAS 39.2]
interests in subsidiaries, associates, and joint ventures accounted for under IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates, or IAS 31 Interests in Joint Ventures (or, for periods beginning on or after 1 January 2013, IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures); however IAS 39 applies in cases where under those standards such interests are to be accounted for under IAS 39.”I believe that I’m still correct in that IAS 39 shall not apply to issue costs of shares / debentures in a business combination
That’s my ethical and moral duty , that i should help other students and pay you back with identifying or discussing any issues regarding quality of service ,you are providing.Also discussing is in my own personal interest [ Kohlberg Level 1 – Deals in self interest 😛 ]
Ok.
Well I believe.
Issue costs related to equity and debt , in business combination should be treated as per relevant standards. [ Equity issue costs should be deducted from equity ] [Debt issue costs depending on amortized costs liability and FVPL liability]Other costs ,such as professional fees [ Expensed ] Would not be part of Investment.
I suggest and also request you to double check this treatment. With some Authentic example That clarifies.
I hope to hear from you.[May be you can put a suplement to your notes then ]
HI Karen
I don’t know what you want from me! I’ve checked IAS 27 again, and the 2011 revision, and I’m happy that what I have said is correct. I’ve also checked IAS 28 which says nothing about issue costs or professional fees – neither in the original IAS nor in the 2011 revision.
But what sort of “authentic example” do you want me to give by way of clarification? I have absolutely no practical experience of having to deal with this situation
And who is this Kohlberg person? 🙂 (Students reading this and still facing the prospect of P1 will soon find out about Lawrence Kohlberg)
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