Flotation costs cannot be deducted as a business expense and are factored into the overall cost of raising capital.
Flotation costs are typically associated with the issuance of new securities, such as stocks or bonds, and represent the expenses incurred by a company in the process of raising capital. These costs include underwriting fees, legal fees, and other transaction costs. Flotation costs are not amortized over the life of a loan, as loans and flotation costs are distinct concepts. The correct statement regarding the treatment of flotation costs is that they cannot be deducted as a business expense. Instead, flotation costs are usually included in the calculation of the cost of new securities issued and are adjusted in the initial cost basis of the securities. This means that they are factored into the overall cost of raising capital rather than expensed immediately or amortized over time.
Complete question :-
Flotation costs: are amortized using a declining-balance method over the life of the loan. are amortized using the straight-line method over the life of the loan. are deducted as a business expense in the year incurred. cannot be deducted as a business expense. are deducted as a business expense at the time the loan is repaid in full.