Accounting Entry for Bank Guarantee invocation

Premnath (Manager)     20 January 2021

Premnath
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Hi,

Please clarify me how to book the entry for BG invocation as per IFRS.

CA Venkata Koteswararao Mogali (job)     20 January 2021

CA Venkata Koteswararao Mogali
job
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Let me explain this with an example,

Suppose if my holding company (ABC Ltd) given guarantee on my behalf to my banker (XYZ Bank) for a loan of Rs 10 cr and i failed to repay the loan amount, then the banker have invoked the bank guarantee.

The accounting entry will be as follows:

Loan (XYZ Bank) a/c Dr     10cr

To ABC Ltd a/c                 10cr

yasaswi gomes (My grammar is 💯 good I)     20 January 2021

yasaswi gomes
My grammar is 💯 good I
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Initial recognition- at fair value only of the financial guarantee with premium or without premium

Bank a/c

To Financial guarantee contract liabilities a/c

SPLOCI-PL a/c

To Financial guarantee contract liabilities  a/c

Subsequent measurement:

First amortise the financial guarantee contract, usually using straight line method. For 1000 loan guarantee over five years = 200₹

By financial guarantee contract liabilities a/c 200₹

To Income from financial guarantee a/c 200₹

Then, measure the financial guarantee at higher of :

• The loss allowance determined as expected credit loss under IFRS 9 and
• The amount initially recognized (fair value) less any cumulative amount of income/ amortization recognized in line with IFRS 15.

if you calculate your ECL as 300, then you keep measuring the financial guarantee at 800₹ (1000₹ Minus 200₹) on your balance sheet. But due to fair value changes if the ECL is 1100₹, then recognise the loss in SPLOCI- PL 300₹ (1100₹ Minus 800₹). If the subsidiary completely fails to pay the debt, Write off the carrying amount as a loss.(ecl-ca)

the above answer suggests that liability is credited towards holding compan

yasaswi gomes (My grammar is 💯 good I)     20 January 2021

yasaswi gomes
My grammar is 💯 good I
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I found a default entry and an example here: hope it helps you for reporting in holding company

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