Page 6 - 15. COMPILER QB - INDAS 21

Calculation of amortized cost of loan (in FCY) at the year end:
Period Opening Financial Liability Interest @ 12% (FCY) Cash Flow Closing Financial Liability
(FCY) A B (FCY) C (FCY) A+B-C

20X1-20X2 58,00,000 6,96,000 6,00,000 58,96,000
The finance cost in FCY is 6,96,000
The finance cost would be recorded at an average rate for the period since it accrues over a period of time.
Hence, the finance cost for FY 20X1-20X2 in INR is Rs 16,84,320 (6,96,000 FCY x Rs 2.42 / FCY)
The actual payment of interest would be recorded at 6,00,000 x 2.75 = INR 16,50,000
The loan balance is a monetary item so it is translated at the rate of exchange at the reporting date.
So the closing loan balance in INR is 58,96,000 FCY x INR 2.75 / FCY = Rs 1,62,14,000

The exchange differences that are created by this treatment are recognized in profit and loss.
In this case, the exchange difference is Rs [1,62,14,000 - (1,45,00,000 + 16,84,320 – 16,50,000)] = Rs
16,79,680. This exchange difference is taken to profit and loss.

Q6. (Nov 20)
An Indian entity, whose functional currency is rupees, purchases USD dominated bond at its fair value of
USD 1,000. The bond carries stated interest @ 4.7% p.a. on its face value. The said interest is received at

the year-end. The bond has maturity period of 5 years and is redeemable at its face value of USD 1,250. The
fair value of the bond at the end of year 1 is USD 1,060. The exchange rate on the date of transaction and
at the end of year 1 are USD 1 = Rs 40 and USD 1 = Rs 45, respectively. The weighted average exchange
rate for the year is 1 USD = Rs 42.

The entity has determined that it is holding the bond as part of an investment portfolio whose objective is
met both by holding the asset to collect contractual cash flows and selling the asset. The purchased USD
bond is to be classified under the FVTOCI category.

The bond results in effective interest rate (EIR) of 10% p.a.

Calculate gain or loss to be recognised in Profit & Loss and Other Comprehensive Income for year Also pass
journal entry to recognise gain or loss on above. (Round off the figures to nearest rupees)
SOLUTION

Computation of amounts to be recognized in the P&L and OCI:
Particulars USD Exchange rate Rs
Cost of the bond 1,000 40 40,000
Interest accrued @ 10% p.a. 100 42 4,200

Interest received (USD 1,250 x 4.7%) (59) 45 (2,655)
Amortized cost at year-end 1,041 45 46,845
Fair value at year end 1,060 45 47,700
Interest income to be recognized in P & L 4,200
Exchange gain on the principal amount [1,000 x (45-40)] (OCI) 5,000

Exchange gain on interest accrual [100 x (45 - 42)] (OCI) 300
Total exchange gain/loss to be recognized in OCI 5,300
Fair value gain to be recognized in OCI [45 x (1,060 - 1,041)] 855

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