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fragment of the question:
The following trial balance relates to Dune at 31 March 20X4
….
5% loan note (note (1)) 20,000The following notes are relevant:
(1) The 5% loan note was issued on 1 April 20X3 at its nominal (face) value of $20 million.
The direct costs of the issue were $500,000 and these have been charged to
administrative expenses. The loan note will be redeemed on 31 March 20X6 at a
substantial premium. The effective finance cost of the loan note is 10% per annumAnswer
Dune – Statement of profit or loss for the year ended 31 March 20X4Administrative expenses (34,200 – 500 loan note issue costs) (33,700)
Hello ACCA lovers!
Why did they deduct issue costs from admin expenses?
shouldn’t it be added ?500,000 Issue cost was wrongfully charged to administrative expenses. We are required to reverse the mistake. As the cost is charged (added) with the administrative cost, we reverse it by deducting the amount. Thus cost decreases and profit which was understated increases.
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