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With reference to the answer to the question on page 52 of the FR lecture notes, I noted that we add back the loan transaction cost of $200,000 to the retained earnings.
Is it correct to say that it should not have been charged against P/L, but capitalised as part of the financial liability instead?
Much appreciated for your guidance.
Good to hear from you again and it sounds like you are making good progress through the class notes/videos.
Yes, you are correct. The transaction costs should have been added to the initial measurement of the financial asset but were incorrectly expenses through profit or loss, so to correct we DR Financial Asset CR Retained earnings.
Hi Chris, question is not asking for it but just out of practice and double checking the end result, why am I not getting ´nil¨ on the C/F on year 5? I applied 7% as redemption premium but I guess that´s just not right, is it?
b/f 7% 4% C/f
Y1 $3.800.000,00 $266.000,00 $-160.000,00 $3.906.000,00
Y2 $3.906.000,00 $273.420,00 $-160.000,00 $4.019.420,00
Y3 $4.019.420,00 $281.359,40 $-160.000,00 $4.140.779,40
Y4 $4.140.779,40 $289.854,56 $-160.000,00 $4.270.633,96
Y5 $4.270.633,96 $298.944,38 $-4.440.000,00 $129.578,34
Many thanks in advance.