CFM23040 - Accounting for corporate finance: UK GAAP before 1 January 2005: borrowers: accrual accounting: liabilities

Balance sheet

If there is a difference between the amount initially raised from a debt instrument and the amount which must be repaid e.g. the loan has been issued at a discount, then under FRS 4 the borrower must spread the difference over the period to redemption. The amount of the discount charged to the P&L and the amount by which the principal is increased each period should represent a constant percentage of the carrying amount of the debt (see example at CFM23070).