Equity issue costs

Learning objectives

• Explain that incremental costs directly attributable to an equity transaction are deducted from equity.L2
• Calculate the net amount recognised in equity after deducting issue costs.L2

Normative references

• IAS 32 §37The costs of issuing or acquiring its own equity instruments (registration and other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties) are accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the transaction that would otherwise have been avoided; the costs of an equity transaction that is abandoned are recognised as an expense.
• IAS 32 §38Transaction costs relating to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds; costs that relate jointly to more than one transaction (for example, a concurrent offering of shares and stock exchange listing) are allocated on a basis that is rational and consistent with similar transactions.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Cèdre SA issues new shares for gross proceeds of {gross_proceeds}. It incurs {incremental_costs} of brokerage, legal advice and registration costs, directly attributable to the issue and that would have been avoided without it, and {general_communication_costs} of corporate communication costs with no direct link to the issue (case data). No tax effect is to be taken into account (case data). Calculate the net amount recorded in equity after the issue.L2
• An accountant comments on the treatment of the costs of an issue of new shares. Which of the accountant's statements is wrong?L2