Past exam Dec '11 Q2 - Section B

Bbojanbih9y ago

Hi MIke, It's about next part Quincy issued a $25 million 6% loan note on 1 October 2011. Issue costs were $1 million and these have been charged to administrative expenses. The loan will be redeemed on 30 September 2014 at a premium which gives an effective interest rate on the loan of 8%. Why in the PL we need to exclude $1 million from administrative expenses? What kind of expense is that issuing cost? Thank you. Regards,

MikeLittleTutor9y ago#1

'What kind of expense is that issuing cost?' It's the cost to the company of arranging and actually effecting the loan issue Involved in that $1 million will be banker's costs, legal fees and probably accountancy fees - and none of those come s cheap The standard says that costs of issuing a loan should be deducted from the loan liability and should not be charged to administrative expenses The company has included the $1 million within the expense item 'Administrative Expenses' - it needs to be credited out from there and debited against the loan liability OK?

Bbojanbih9y ago#2

Thank you, Mike. This type of expenses will be other expenses or some other type of expense? Thank you. Regards,

MikeLittleTutor9y ago#3

"This type of expenses will be other expenses or some other type of expense?" I simply cannot make head nor tail out of this post! What are you asking here?

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