OID - Balance Sheet Debt Impact
Monkeys, need help with the concept of OID. How does this impact the 3 statements specifically the balance sheet debt?
Say we have Term Loan of £600 traded at 6% discount, term of 6 years. Tax rate of 20%. My understanding for year 1 is as follows:
IS: We record $1 as an expense - Net Income is down $0.8
CFS: $1 is added back as it is non cash. This gives a cash increase of $0.2
BS: Initial debt recorded as $594. After year 1 our debt is $594 + $1 = $595
Is my understanding correct?
IS : Record $6 as an expense (600*6% = 36/6 = 6) - Net Income is down $6
CFS: 6$ is added back. Cash increase of $6
BS: Initial debt recorded as 564. After year 1 it goes up to 570 (564+6)
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