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June 2010 Q2-Dune, I really met the same problem within this question.
1) 5% loan note nominal value 20m. Effective finance cost 10% per annum. The direct costs of the issue were 0.5m —-What does the direct costs mean? Najiya, I used your method to work out “finance cost”,”C.V. of loan notes”without direct costs very well, but for this, I cant work out quickly and do not know how to understand this 0.5m.
2) Still costs problem, leasehold property, the expected costs to sell have been agreed at 0.5m. on Oct.1 09,C.V. is 37.5m, Fair Value less cost to sell at this date is 40mx85%-500 —-Why here less 500? I cant deal with such costs correctly1)when the loan notes are issued, they will be recognised after deducting discounts, issue costs, etc..if any from the nominal value.
here in this qn, we hav direct costs.
loan note will be recorded at 20m – 0.5m = 19.5m when issued.
direct costs of issue are costs directly related to the issue of loan notes.2)non-current assets should be shown at no more than their recoverable value.
what is recoverable value?
it is the higher of ‘Fair value less costs to sell’ and ‘Value in use’.here, fair value is 85%*40m and expected costs to sell given as 0.5m.
inorder to calculate fair value less costs to sell…we have to subtract 0.5m right?….i dont understand why such a question.plz ask if u need more explanation.
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