US GAAP for loans w/ share purchase attached

US GAAP for loans w/ share purchase attached

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Wiley US GAAP gives several examples about intrinsic values of conversion features, attached warrants etc. But the financing in question had no conversion features - it was a straight stock issue at par, conditional upon the subscriber providing loan funding in addition to the subscription. Under US GAAP, can the loans and equity issue be booked completely separately, or should equity booked be higher than amounts subscribed, with the difference being taken to cost....?
Jerry Hall

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By Georgina Rollings
24th Mar 2004 13:19

Always record issuances of shares at fair value
The answer isn't the one you would want, I'm afraid - if the shares were issued at a discount then that discount has to be recorded. The shares should be fair valued (market, if traded, tricky if not but can base on cash sales to third parties near that date, if any), and then the question is why were they sold at a discount. In this case it was provisional on them providing loans, which would indicate that the difference between fair value and nominal was effectively interest expense, which should be amortised to the income statement over the period of the loan.

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