Cost raising capital

[accountant10]

Hi everyone:

I would like to know what is the accounting treatment for the cost related to raising capital, such as investment bank fees, legal fees among others. should it be deferred or expensed, please provide me with the technical reference

Thank you in advance for your help

 

[Counterofbeans]

Neither.

Cost incurred related to equity offerings are offset against the proceeds of the offering, generally reducing paid-in capital, which is thus reported net of costs.

If a unit offering involves debt and equity, the offering costs should be allocated proportionally against equity and debt, possibly creating a discount on the debt issuance that will be amortized as additional interest expense in the usual manner.

Hope that helps

 

[Qbookslave]

Matching Principle. Expenses should be matched to the income they produce whenever possible. If these events do not occur within the same period, you have a different issue.

 

[Counterofbeans]

Matching Principle. Expenses should be matched to the income they produce whenever possible. If these events do not occur within the same period, you have a different issue.

These expenses have nothing to do with any income generating activities; the matching principle doesn't apply here.

 

[The Finance Writer]

When I worked in the investment banking industry, I was often asked this question. Back then, my answer to the company principals raising capital was to not worry about it because the accountants figure out that stuff. I relied upon smart people like Counterofbeans.

Now, I'm glad I continued learning so that I understand issues like this one. I highly recommend this path to accountant10... although we sometimes still need help from Counterofbeans on the more complex issues.