When you borrow for a large project and there are debt issuance costs involved, do you consider those part of the project or operating expense? Saving Changes...
Stéphane ParentSelf Employed / Semi-retired| Leader MakerPrince Edward Island, Canada
It depends on the project. Was the project already started when the loan was taken? Will the project be recognizing a positive cash flow (i.e., milestone payments)?
If you answer yes to either of those questions, you could make the case that the loan-related costs belong to the project.
It depends on the project. Was the project already started when the loan was taken? Will the project be recognizing a positive cash flow (i.e., milestone payments)?
If you answer yes to either of those questions, you could make the case that the loan-related costs belong to the project.
Thank you! Saving Changes...
Thomas WalentaGlobal Project Economy ExpertHackenheim, Germany
In large companies I found that any cashflow and financial transactions are handled by the accounting department and they would not allow projects to borrow money by themselves. Cost for financial transactions might be charged to the project though.
It depends on how the borrowed money is used, just like the interest being earned on the unspent money. There are a variety of accounting regulations that may need to be taken into consideration such as what the money is being spent on, and when.
In large companies I found that any cashflow and financial transactions are handled by the accounting department and they would not allow projects to borrow money by themselves. Cost for financial transactions might be charged to the project though.
It depends on how the borrowed money is used, just like the interest being earned on the unspent money. There are a variety of accounting regulations that may need to be taken into consideration such as what the money is being spent on, and when.
True! Thank you. Saving Changes...
Paul AzanorProject Consultant| Lagos NigeriaIkoyi, Lagos, Nigeria
This is usually classified under indirect cost of the project. The project sponsor and the accounting department rally the bank to get funding for projects. The project manager play some role as-well. This is part of the project risk.
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1 reply by Liliya Sablukova, MBA, PMP, CGFO
Jun 27, 2019 1:55 PM
Liliya Sablukova, MBA, PMP, CGFO
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Thank you.
Saving Changes...
Jorge EscotoDirector of PM/PMO| CET Professionals ServicesSan Pedro Sula, Cortes, Honduras
Yes. If you to borrow to execute the project, the cost for borrowing is part of the project cost, and it should be considered when calculating ROI, NPV, etc.
International Accounting Standard (IAS) 23 Borrowing Costs, basically states that you should capitalize borrowing costs if they are directly attributable to the acquisition, construction or production of a qualifying asset. So this gives us an idea on how we should treat borrowing costs when they are directly associated with the project.
Yes. If you to borrow to execute the project, the cost for borrowing is part of the project cost, and it should be considered when calculating ROI, NPV, etc.
International Accounting Standard (IAS) 23 Borrowing Costs, basically states that you should capitalize borrowing costs if they are directly attributable to the acquisition, construction or production of a qualifying asset. So this gives us an idea on how we should treat borrowing costs when they are directly associated with the project.
This is usually classified under indirect cost of the project. The project sponsor and the accounting department rally the bank to get funding for projects. The project manager play some role as-well. This is part of the project risk.
