Issuing Loan Notes

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October 21, 2011 at 8:48 pm #50180
hann
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If a company issues loan notes, do they treat them as an asset or liability?
October 22, 2011 at 6:44 am #88988
ratna1238
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Hi,

Here is what I got:
https://www.santandershareholder.co.uk/shareholder-services/faq/loan-notes/

What is a Loan Note?
A Loan Note is a document evidencing the terms on which a debt is owed to you by the issuer of the Loan Note. Interest is payable to the Loan Note holder until the debt is paid back during, or at the end of, a fixed period.

So.. the company that issues the loan notes (ISSUER) actually receive your money and write a document of IOU (Loan Note). You get interest on the loan and get repayment.

https://www.iasplus.com/standard/ias32.htm
says..
Financial liability: any liability that is:
a contractual obligation:
to deliver cash or another financial asset to another entity; or
to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or
etc…

So… for the ISSUERS of the LOAN NOTE, they will record it as A LIABILITY
becuz it is a contractual agreement to deliver in this case CASH.

I hope that helps.
October 23, 2011 at 4:44 pm #88989
MikeLittle
Keymaster
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I think the clue is in the word “issue”. If it were an asset, the question would be “where a company invests in loan notes …..”

Where a company “issues” a loan note, they are doing so ( giving a written acknowledgement of a debt ) in recognition of the fact that they now owe money.

Thus, it’s a liability
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