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Hi Mr Mike, I have a question relating to direct issue cost on loan note.
The question has been taken from September/December exam 2015
Trial balance at 30 June 2015
Administrative expense-6800
5%loan note 20000Note:
The 5% loan note was issued on 1 July 2014 at its nominal value of $ 20 million incurring direct issue costs of $500,000 which have been charged to administrative expenses.The loan note will be redeemed after three years at a premium which gives the loan note an effective finance cost of 8% per annum. Annual interest paid was paid on 30 June 2015.Loan note-20000
direct issue cost-5000
equal 19500
we recognise fixed interest on 20000*5=1000date 2015
o/b 19500
effective interest rate 8%-1560
fixed interest-(1000)
c/b——20060In the preparation of P/l
Direct cost has been deducted from administrative expense (6800-500)
my question is that do not recognise issue cost as expense ?when i saw it has been deducted from Administrative expense i confused.Do we always deduct issue cost from expenses?
Ask yourself this … “Is this financial liability classified as ‘not at fair value through profit or loss’?”
Here’s the relevant extract … again!
“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.”
OK?
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