Situation:
A company provides various types of loans to staff at concessional rates like House Building Advancce, Vehicle, Multipurpose etc. In paymment, Principal is recovered 1st, Accrued Interest is recovered in EMIs after Principal is fullyy recovered.
Query:
To calculate amortised cost as on 31.3.10, what wl be the treatment of balace interest. Do we need to calculate the balance interest that could accru after 31.3.10 and amortise it or some other way???
Hi Pankaj,
Not required to measure and recognize the Interest receivable.
Reasoning
1. The balance interest receivable as at the reporting date, if at all recognized, is a Financial asset for the enterprise
2. This Financial asset needs to be measured at Amortized cost using effective interest rate method, as we know.
3. Effective interest rate is the IRR of the cash flows receivable over the period
4. So having computed the effective interest rate based on the interest receivable over the life, if we again discount such interest receivable using that IRR, the present value will be Nil
5. Hence from IFRS Convergence view, all interest bearing loans shall be carried at the same value in IFRS as they were carried in IGAAP.
Synergy Keystone
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CA
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