Convertible Debt-Capitalized Interest
Hi,
I have a question about the accounting and understanding of this specific convertible debt terms.
"It is a 10-year note with no payments for the first 84 months with interest to accrue and capitalize annually. Thereafter, principal payments in an amount to fully amortize [X amount], together with capitalized interest, over the remaining three years plus interest payable monthly for thirty-six months."
During the first 7 years would the interest go on the income statement or would it just stay on the balance sheet (adding to the loan balance)? From my understanding, it would not be recognized on the income statement until you start repayment, in year 7.
Is this for GCP or secured by an asset? Looks to me like it is capitalized, but that interest has to be amortizing over the life of the asset project for which it is capitalized. If this is for something with a 7-year construction period, then I could see th abort starting a5 year seven (note this is separate from the cash amortization of the loan balance, this is the amortization; of the capitalized interest account from the balance sheet to the income statement). By my understanding, which dan is is worth looking up in the accounting standard (gap or ifrs), it should start amortizing as soon as the asset or project comes into service, usually straight line over the life of the asset.
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