Exam preparation question 1 – Financial liability - FR - Noreen

Ffahim2313y ago

Hi, I was looking at the answers for Noreen Co and don't understand why the Issue costs of 200,000 are added to retained earnings when arriving at the final retained earnings figure? Please help.

P2-D2Tutor3y ago#1

Hi, This is because they have incorrectly charged the issue costs to profit or loss, so will have DR SPL CR Bank. They should have DR Financial asset/liability CR Bank and so to correct this we need to CR SPL (adding back the incorrect initial entry) DR Financial asset/liability. Thanks

KKamran1y ago#2

Thank you. I couldnt understand as well. the answers in the back does not explain why the issue costs are added to retained earnings

P2-D2Tutor1y ago#3

The answer is given in the response to the original post, where the issue costs were originally expensed through profit or loss incorrectly and we are not adding them back to retained earnings. Thanks