Exam Prep. Question 1 - Financial Liability

AAayush5y ago

Hi, Kindly advise why the issue costs of 200,000 is added to the retained earnings in the adjustment of the draft retained earnings? And why is the interest payable (I think I know the answer but wish to be crystal clear) of 160,000 subtracted? Shouldn't it be subtracted since it is an issuing cost? Please confirm the same. Thank you. Aayush Shah

P2-D2Tutor5y ago#1

Hi, The issue costs have been expensed through profit or loss incorrectly and should have been included in the value of the financial instrument, so we need to add them back to remove the expense, therefore increasing the profit. Thanks.