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Amortisation of transaction costs

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Amortisation of transaction costs

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 24, 2015 at 11:21 pm #278780
    Stefano
    Member
    • Topics: 23
    • Replies: 28
    • ☆☆

    Hi Mike,

    What does the following sentence mean?

    The carrying amount of the loan (received) is subsequently increased by amortisation of transaction costs against accounting profit.

    Where the carrying amount is proceeds received less transaction costs.

    THank you for your help in advance.

    Stefano

    October 25, 2015 at 7:36 am #278801
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    But, when we record the loan at face value less transaction costs, we’re still going to have to pay the full value of the loan on redemption date.

    So, over the period of the loan, we’re going to expense the statement of profit or loss and credit the loan account until, on redemption date, the carrying value of the loan on the credit side of the loan account is the full amount payable

    Is that better?

    October 25, 2015 at 10:33 am #278826
    Stefano
    Member
    • Topics: 23
    • Replies: 28
    • ☆☆

    ehm I thought we would only expense the statement of profit and loss with interests on the loan. The loan itself it is a capital payment and would be recorded as a liability. As we make a repayment we would debit the loan account and credit cash. However, what I seem to understand now is that when we expense the profit and loss statement with the transaction costs we credit the loan account and that would result in an increase of the carrying amount of the loan.
    I would appreciate your opinion on the above.
    Thank you very much,
    Stefano

    October 25, 2015 at 10:50 am #278829
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22699
    • ☆☆☆☆☆

    But the loan would have been recorded net of transaction costs

    Your line says it all …

    “Where the carrying amount is proceeds received less transaction costs.”

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