Our company has switched loan facility from one bank to another bank. whether prepayment charge charged by one of bank can be amortized over the pending TL tenure or booked as revenue expenditure in current year only?
Thanks in advance.
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Amortization of prepayment TL charges
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If this prepayment your taking about has useful life of more than a year, then it can be amortised if it gives rise to an asset.
Next, the main treatment for prepayments is similar to deferred revenue. That means, since goods and services are not transferred but advance received, it is a liability. When you deliver goods, it will be recognised as revenue. (Bank)
If your paying the money in advance, then, in your books
Prepayments a/c Asset
To Cash a/c Asset.
eg. You prepaid to buy a Mercedes Benz and once you recognise it, you will derecognise prepayments.
Once you receive a ‘service’***, it is expensed. If you are receiving an asset for your prepayment, the incoming asset will be debited and prepayments will be credited.
The bank prepayment charges cannot be amortised as it appears to be revenue based transaction. Please provide further info. If your prepayment is directly correlated to generation of an asset, this can be classified as development expenditure and capitalised, therefore, it can amortised.
***booked a private jet
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