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I stumble across this while studying financial liability. It is stated that initial measurement is Fair value – transaction cost, which is net proceed. Let’s think of an example then. I issue a $10 bond (no premium and interest whatsoever) to A and incur transaction cost of 1$. According to the standard, I record that liability at 10-1 = $9. However I still have to pay A $10 later. That confuses me. Can anyone help out? Many thanks
Phuc
Hi,
The treatment of the FL under amortised cost ensures that the $9 is grown over the life of the FL to reach its redemption value over the life of the instrument., via a finance cost (effective rate of interest). This ultimately means that the transaction cost is then spread over the life of the instrument.
Thanks
Hi,
The treatment of the FL under amortised cost ensures that the $9 is grown over the life of the FL to reach its redemption value over the life of the instrument., via a finance cost (effective rate of interest). This ultimately means that the transaction cost is then spread over the life of the instrument.
Thanks
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