Amortization of of pre paid arranging fees

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Amortization of of pre paid arranging fees

Post by KevRSA »

Good day IFRS people,

I please need your assistance with the calculation and journal entries for a liability at amortized costs where arranging fees were pre paid. I have attached a file.

On 30 May 2017, funding is received (cash received) to the amount of R1,682,525. An arranging fee of R203,920 is paid on the same day. Every 6 month interest is paid, until March 2020, after which interest and capital payments are made. In the attached file, column A and B, I have provided dates and and amounts of cash flows, including the outflow for the pre paid fees, and I have worked out the EIR using the XIRR function.

From my understanding, the accounting entries on day 1 would be:

Dr Bank R1,682,525
Cr Liability R1,682,525
Dr Pre paid fees R203,920
Cr Bank R203,920

I have calculated the EIR by starting with a net inflow (R1.7b - R203m) on day one and then bringing in interest and capital cash flows until maturity.

The first interest payment is R55m on 30 Sep 2017 and the 2nd is R87m at year end 31 March 2018.

1. Is the EIR calculated correctly?
2. Are these initial journals correct?
3. What are the journals at date of first interest payment and year end?

Any assistance would be greatly appreciated!
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Marek Muc
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Re: Amortization of of pre paid arranging fees

Post by Marek Muc »

Hi, you can see an illustrative excel example here: ... rest-rate/
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Re: Amortization of of pre paid arranging fees

Post by DJP »

The fees are an integral part of the borrowing, so you should debit the financial liability account, i.e. you should not present the fees as an asset.
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