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CFA Level I · CFA Level I Exam · Topics in Long-Term Liabilities and Equity

Under IFRS, transaction costs incurred when issuing a bond measured at amortized cost are most likely:

Issuance costs are deducted from the bond's initial carrying amount and amortized over its life through the effective interest rate. This raises the effective rate above the market yield and spreads the cost across periods rather than expensing it immediately.

  1. ADeducted from the initial carrying amount and amortized through the effective interest rateCorrect
  2. BExpensed immediately in the period of issuance
  3. CRecorded as a separate asset and left unamortized

Explanation

IFRS treats issuance costs as a reduction of the liability's initial carrying amount, which raises the effective interest rate. The costs are then spread over the bond's life through the effective interest method. Immediate expensing is not the IFRS treatment for amortized-cost liabilities.

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