Sir/Ma'am,
my client has a loan from its parent company @ 10% the interest of which is compounded quarterly and entire amount including interest is to be paid after 3 years. EIR is 12%.
Can you guide me with the Journal entries to take into effect this fair valuation.
Thank You
Assuming loan amount 100000.
First calculate the fair value of loan which will be:
(100000×(1.025)^12))/1.12^3 = 95726.
Diff 100000-95726 = 4274 will be treated as income.
Then take loan anount Rs. 95726 and charge interest @ 12% on such loan for three years.
CAclubindia
