Fair Valuation of loan at below EIR

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Aniruddha Gupta

2 Points Joined December 2016

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

Replies (2)

Prakash Gehani

Consultant & Teacher(Whatsapp 8718057907

1306 Points Joined November 2017

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.

JamesAlonso

USA

32 Points Joined January 2020

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