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