Page 26 - 23. COMPILER QB - IND AS 109_32

The additional charge to be recognised in the income statement is calculated as:
Debt component of the financial instrument Rs. 5,60,000
Interest charge (5,60,000 x 10%) Rs. 56,000

Already charged to the income statement (Rs. 48,000)
Additional charge required Rs. 8,000

Journal Entries for recording additional finance cost for year ended 31 March 2019
Particulars Dr. Amount Cr. Amount
(Rs.) (Rs.)

Finance cost A/c Dr. 8,000
To Debt component A/c 8,000
(Being interest recorded for difference between
amount recorded earlier and that to be recorded per

Ind AS 32)

Q16 (March 19 – 8 Marks)

On April 1, 20X1, Pluto Ltd. has advanced a loan for Rs. 10 lakhs to one of its employees for an interest rate
at 4% per annum (market rate 10%) which is repayable in 5 equal annual installments along with interest at
each year end. Employees are not required to give any specific performance against this benefit.
The accountant of the company has recognised the staff loan in the balance sheet equivalent to the amount
disbursed i.e. Rs. 10 lakhs. The interest income for the period is recognised at the contracted rate in the

Statement of Profit and Loss by the company i.e. Rs. 40,000 (Rs. 10 lakhs x 4%).
Analyse whether the above accounting treatment made by the accountant is in compliance with the Ind AS. If
not, advise the correct treatment along with working for the same.
SOLUTION

The above treatment needs to be examined in the light of the provisions given in Ind AS 32 and Ind AS 109

on Financial Instruments’ and Ind AS 19 ‘Employee Benefits’.
Ind AS 32 ‘Financial Instruments: Presentation’ states that:
“A financial asset is any asset that is:
(c) a contractual right:
(i) to receive cash or…..”

Further, Ind AS 109 states that:
“At initial recognition, an entity shall measure a financial asset or financial liability at its fair value”.

Further, Appendix B to Ind AS 109 states that:

“The fair value of a financial instrument at initial recognition is normally the transaction price (i.e. the fair
value of the consideration given or received. However, if part of the consideration given or received is for
something other than the financial instrument, an entity shall measure the fair value of the financial
instrument. For example, the fair value of a long term loan or receivable that carries no interest can be
measured as the present value of all future cash receipts discounted using the prevailing market(s) of interest
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