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Hi Chris,
Liking the lectures a lot. Thank you. The part about Dr the BANK £2m and because of the Transaction Costs you CR the liabilty £1.9m. Do you have to amortize the transaction costs or you CR the P&L a full £0.1m. Thanks. Or maybe the real question is why you don’t do it you amortize the transaction costs.
Thanks.Hi,
Glad you’re enjoying the lectures. I hope in watching them it helps you gain success in the final exam.
The transaction costs are recognised through profit or loss, but not immediately. The costs are recognised by increasing the effective rate of interest on the financial liability so that a slightly higher interest expense is recognised than if we were to use an effective rate that didn’t include the impact of the transaction costs.
Don’t worry as you wouldn’t have to do any calculations of the effective rate, it would always be given to you in the question.
Thanks
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