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If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 8:06am On Nov 25, 2016 |
A loan was advanced to a related party at an interest rate less than the market rate. At the inception of the loan, it was fair valued in line with IAS 39 and IFRS 9. The loan tenure is 3 years. The loan has been rescheduled and a moratorium period of six months granted after 1 year 7 months into the loan period. Now the question, what is the effect of the rescheduling on the fair value and subsequent accounting for the loan? Does the loan need to be fair valued again bearing in mind that FV is a function of time? Mod please take this to home page. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 11:02am On Nov 25, 2016 |
Dereformer: |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Tolakay: 6:13pm On Nov 25, 2016 |
Ok... Waiting for answers |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 8:52am On Nov 30, 2016 |
Tolakay: |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 6:25pm On Nov 30, 2016 |
Are you accounting as the loan giver(financial asset) or loan receiver( financial liability) , we need to perform business model/ cash flow test to determine whether d loan should be carried at fair value or amortised cost by finding the reason why they are holding the loan. Is it for trading purpose or to get specified income at a certain date. Pls answer that to know the proper way to account for it. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 8:19am On Dec 01, 2016 |
fotogirl: We are accounting from the perspective of the loan receiver ie financial liability. Note that the main import of the question is the effect of rescheduling on the already fair valued loan. Should the loan be fair valued again bearing in mind the extention arising from the rescheduling? Answers should be supported with relevant IFRS, IFRIC and/or the conceptual frame work. NB. the loan is already accounted for at amortised cost. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 12:54pm On Dec 01, 2016 |
Dereformer: |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 5:22pm On Dec 01, 2016 |
Since you are accounting using the Fair value method, the loan should be fair valued again. The changes in the loan term will be reflected when estimating the Fair value. The changes in fair value will be reported in statement of profit or loss. The new fair value will be reported in statement of financial position. However you only need to do this at the end of the reporting period except there is a special case for it. This is in accordance with ifrs 9, however you mind need to account for changes in fair value which is as a result own credit risk which goes to other comprehensive income. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 5:34pm On Dec 01, 2016 |
I just read it again and saw you put it in the note that the loan is carried at amortised cost. I think I understand now. The loan is accounted for using amortised cost. At initial recognition the Fair value is used to calculate the amortised cost. Now that the loan has been rescheduled you want to know if u need to get the current fair value to calculate another amortised cost. Am I right? |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 5:55pm On Dec 01, 2016 |
fotogirl: This is the total scenerio. Company A got a loan from a related party at an interest rate of 9%. The loan is to be repaid monthly with interest over a period of 3 years. the effective interest rate in an arms lenght transaction is 17%. At the day one of the loan it was fair valued by calculating the PV of the future cash outflows with the effective interest rate. The difference between the PV of the discounted loan and the loan amount was recognised in the profit or loss in accordance with IFRS 9. For illustration, the figures here are hypothetical. Loan granted to Company A is N10,000,000.00 PV of loan after discounting with the effective interest rate is N7, 367, 423.89 Difference which is recognised in the statement of profit or loss is N2,632,576.11 After this, using amortised cost, every month an interest on the outstanding loan ( calculated using 17%) is credited to the loan creditor while any payment made as per the agreed repayment schedule is debited against the loan creditor. Now, the loan has been rescheduled. The question is, should the loan be fair valued again from the begining bearing in mind that the loan term has changed. The original fair value was based on the fact that the loan will be repaid under three years. I hope this anlysis helps. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 7:02pm On Dec 01, 2016 |
I believe you are wrong in accounting for this financial liability 1- the fv of the loan is the 10m minus any transaction cost 2- the main issue with related party transaction is disclosure 3- pv of the loan is not the fv, fv is the consideration received 4- the effective interest multiply by the fv minus transaction cost is your finance cost that should be deducted in sopl 5- loan amount of 10m minus pv of loan amount recorded in profit or loss is wrong. To your question, Ifrs 9 is silent on treatment of amortised cost in a case of reschedule, but what I think you should do is recalculate the effective interest over the remaining years and apply it to the carrying amount before rescheduling. I hope you get this. How about calling a chartered accountant close to you. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 9:49pm On Dec 01, 2016 |
fotogirl: madam, sorry to say this, you don't have the understanding of accounting for related party loans received at a rate less than the market rate. Google IFRS treatment of related party loans received at less than market rate. Thank me later |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 9:54pm On Dec 01, 2016 |
still waiting for IFRS professionals. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 1:56am On Dec 02, 2016 |
OK thanks |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 5:48am On Dec 02, 2016 |
fotogirl:I still want to read your comments after the research. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by dahmie2013: 7:45am On Dec 02, 2016 |
Hello Op, i'm not an iFRS expert, but 4rm a logical perspective, d loan has 2 be fair valued again cos, in determining d periodic repayment amount, d tenure was used in d calculation. I don't think it shud affect d accounting of d loan, as d only thing dat has changed is d amount. D principle hasn't changed cos of d changes in d terms. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 3:15pm On Dec 02, 2016 |
After my research, I saw that expert has been using their judgement to account for below market rate related party loan the way you said. No Ifrs to back it up, why not use your judgement to account for the reschedule. I.e Fair value again over the shorter or longer term take difference to sopl, perform amortised cost on the fv loan to get finance cost. Take it as a change inaccounting estimate, so account for it prospectively. That is just my take on it o. Ask expert. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 4:19pm On Dec 02, 2016 |
fotogirl: It actually has ifrs backing. Study the following standards on Financial instruments and you will see IFRS recommended treatment of related party loans at less than market rate. IFRS 9, 7, IAS 32 and IFRS 13 (fair value) |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 5:56pm On Dec 02, 2016 |
I mean no Ifrs to back the reschedule up. If there is you wouldn't be asking your question now, you will just go to ifrs 9. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 6:18pm On Dec 02, 2016 |
fotogirl: Yes. No Ifrs envisaged a reschedule. Just out of curiosity, are you an accountant? |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 6:32pm On Dec 02, 2016 |
Yes, and I guess you are one. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 7:25pm On Dec 02, 2016 |
fotogirl:Yes. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 8:04pm On Dec 03, 2016 |
Dereformer:In practice or industry? |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 8:49pm On Dec 03, 2016 |
fotogirl:Industry. And you? |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by fotogirl: 4:55am On Dec 04, 2016 |
Practice |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by Dereformer(m): 11:02am On Dec 04, 2016 |
ok. |
Re: If You Think You Know IFRS Answer This And Get N1000 MTN Card by cigie(m): 8:20pm On Dec 04, 2016 |
*smiles* |
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