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The company borrowed N400m from the bank at an annual interest rate of 20%. The other charges levied by the bank are: advisory fees, commitment fees and service fees. The company also incurred other costs like professional fees and travel costs (See sheet 'breakdwn of borrowing costs).
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KEY POINTS
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The idea behind amortised costs (effective interest rate method) is to spread the other borrowing costs of N19m over the tenor of the loan (See interest summary on sheet 'loan at amortised costs'.
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The effective interest rate is the rate that ensures that the closing balance of the loan is nil. So we have used 'goal seek' to derive this rate. With the aid of this rate, we have accurately spread the N19m over the tenor of the loan. The common error is that accountants recognise the N19m once in one accounting period, whereas, it is supposed to be amortised.
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The double entries

AT INITIAL RECOGNITION/MEASUREMENT
Dr: Bank
Cr: Loan payable
With the N400m

Dr: Loan payable
Cr: Bank/Payable
With the other borrowing costs of N19m

As a result of the above entries, the initial measurement of the loan would be N381m. This has also been effected in this schedule. The net off between the loan amount and the other BC is a requirement of IFRS 9 paragraph 5.1.1.

AFTER INITIAL RECOGNITION/MEASUREMENT
It is now time to account for the interests (Contractual interest and the amortisation of the N19m which was initially debited to the loan liability. The following entries are important:

For the contractual interest:
Dr: Finance cost
Cr: Interest payable/Bank
With the contractual interest payable at the end of each month

For the amortisation of the other BC:
Dr: Finance cost
Cr: Loan payable
With the amortisation of other BC at the end of each month.

NB
Effective interest (Total interest) = CI + the amortisation of the other BC
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