SINGLE FINANCIAL STATEMENT — OpenTuition Forums

SSHAWN4y ago

Quincy issued a $25 million 6% loan note on 1 October 20X1. Issue costs were $1 million and these have been charged to administrative expenses. The loan will be redeemed on 30 September 20X4 at a premium which gives an effective interest rate on the loan of 8%. the financial liabilty is initially recognized by subtracting the issue cost from cost of disposal so where would the issue cost be recorded? since in the solution financial statement it is subtracted from admin expense and not added anywhere should't it be added somewhere in pnl ???

P2-D2Tutor4y ago#1

Hi, The issue costs should not have been included within the administrative expenses. They have DR Administrative expenses CR Bank when they should have DR Loan note CR Bank. To correct the error we need to DR Loan note CR Administrative expenses. The DR to loan notes reduces the loan notes and the CR to administrative expenses reduces the administrative expenses. Thanks Thanks

ZZakariye3y ago#2

Hi Sir I answered this section C question which this question includes and this is the part that I got wrong. in initial recognition I used the PV of the cash flows (1,500, 1,500 and 26,500) of the three years which gave me (1,389 +1,285.5 + 21,041)= 23,715.5 -1,000(transection cost) = 22,716 loan liability at inception and 1,817 of finance cost and loan note closing 23,033 but when I checked the book they recognized the par value of the Loan note and adjusted for transection cost which is 25,000-1000= 24,000 finance cost 1920. in my knowledge I recognize the financial liabilities at PV of cash flows. so am I right. give me a tip to use in the exam and real life. I was marking for my self and because of taking PV instead of par value I got two figures wrong, Finance cost and loan note liability in SFP both so if you can help me with I need to know that if I can be entitled to OWN FIGURE mercy in the exam. thanks in advance.

P2-D2Tutor3y ago#3

The initial recognition is at fair value, so here will be at the $25 million proceeds received. Yes, you would receive the own figure marks provided you apply the correct percentages to your own figures. Thanks