Page 19 - 23. COMPILER QB - IND AS 109_32

Equity component (5,25,000 -4,91,360) 72,300 33,640* 38,660
Total 5,38,400 5,25,000 13,400

*(5,25,000 – 4,91,360) = 33,640

Journal Entries

Rs. Rs.
8% Debentures (Liability component) Dr. 4,66,100
Profit and loss A/c (Debt settlement expense) Dr. 25,260

To Bank A/c 4,91,360
(Being the repurchase of the liability component recognised)
8% Debentures (Equity component) Dr. 72,300

To Bank A/c 33,640
To Reserves and Surplus A/c 38,660
(Being the cash paid for the equity component recognised)

Q12 (Oct. 18 & March 22)

Hello limited borrowed Rs. 500,000,000 from a bank on 1 January 2016 The original terms of the loan were as
follows:
● Interest rate: 11%
● Repayment of principal in 5 equal installments

● Payment of interest annually on accrual basis
● Upfront processing fee: Rs. 5,870,096
● Effective interest rate on loan: 11.50%
On 31 December 2017, Hello Limited approached the bank citing liquidity issues in meeting the cash flows
required for immediate instalments and re-negotiated the terms of the loan with banks as follows:
● Interest rate 15%

● Repayment of outstanding principal in 10 equal installments starting 31st December 2018.
● Payment of interest on an annual basis
Record journal entries in the books of Hello Limited till 31st December 2018, after giving effect of the
changes in the terms of the loan on 31st December 2017.

SOLUTION
(a) On the date of initial recognition, the effective interest rate of the loan shall be computed keeping in view
the contractual cash flows and upfront processing fee paid. The following table shows the amortisation of

loan based on effective interest rate:
Date Cash flows Cash flows Amortised cost Interest @ EIR
(principal) (interest and (opening + interest (11.50%)

fee) – cash flows)
1-Jan-2016 (500,000,000) 5,870,096 494,129,904
31-Dec-2016 100,000,000 55,000,000 395,954,843 56,824,939
31-Dec-2017 100,000,000 44,000,000 297,489,650 45,534,807
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