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Deferrement of arrangement fee for obtaining loan

21 October 2009 2,782 views 2 Comments

Can the arrangement fee (agengy fees, structuring fee and legal charges) paid to obtain a long term loan be deferred and subsequently amortised over the tenure of the Loan?

Kindly give references from IFRS.

Regards,

Ali

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2 Comments »

  • admin (author) said:

    Message from Antonello

    Ali

    If the arrangement fee relates to a long term loan classified in the category “loans and receivables” or “held to maturity”, the fee must be considered a transaction cost and must be deferred over the life of the underlying loan, according to the amortized cost principle. On the contrary, if the long-term loan is classified in the category “available-for-sale” or “financial instrument with fair value through profit and loss / held for trading”, it should be treated as a cost for the period.

    Therefore, rather than looking to the type of fee, you should first consider the classification of the underlying financial instrument according to IAS 39.

    Beware that there is an exposure draft changing the classification of financial instruments, likely to become effective from January 1st 2011.

    Regards

    Antonello

    # 22 October 2009 at 9:13 am
  • admin (author) said:

    Message from Naveed

    Dear Ali
    If The loan Is obtained to Finance A Qualifying asset then This Cost will Be Amortized If For some other purpose then be written off in the current period.

    Best Regards

    # 23 October 2009 at 7:09 am

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