Page 27 - 23. COMPILER QB - IND AS 109_32

rate of similar instrument with a similar credit rating. Any additional amount lent is an expense or reduction
of income unless it qualifies for recognition as some other type of asset”.

Further, Ind AS 109 states that:
“After initial recognition, an entity shall measure a financial asset at:
a. amortised cost;
b. fair value through other comprehensive income; or
c. fair value through profit or loss.

Further, Ind AS 109 states that:
“Interest revenue shall be calculated by using the effective interest method. This shall be calculated by
applying the effective interest rate to the gross carrying amount of a financial asset Ind AS 19 states that:
“Employee Benefits are all forms of consideration given by an entity in exchange for service rendered by

employees or for the termination of employment”.

The Accountant of Pluto Ltd. has recognised the staff loan in the balance sheet at Rs. 10 lakhs being the
amount disbursed and Rs. 40,000 as interest income for the period is recognised at the contracted rate in the
statement of profit and loss which is not correct and not in accordance with Ind AS 19, Ind AS 32 and Ind
AS 109.

Accordingly, the staff advance being a financial asset shall be initially measured at the fair value and
subsequently at the amortised cost. The interest income is calculated by using the effective interest method.
The difference between the amount lent and fair value is charged as Employee benefit expense in statement

of profit and loss.
a) Calculation of Fair Value of the Loan
Year Cash Inflow Discounting Factor Present Value
(10%)
1 2,40,000 0.909 2,18,160

2 2,32,000 0.826 1,91,632
3 2,24,000 0.751 1,68,224
4 2,16,000 0.683 1,47,528

5 2,08,000 0.621 1,29,168
Total
8,54,712

Staff loan should be initially recorded at Rs. 8,54,712.

Q17 (October 19 – 8 Marks)

Croton Limited is engaged in the business of trading commodities. The company’s main assets are investments
in equity shares, preference shares, bonds, non-convertible debenture (NCD) and mutual funds.
The Company collects the periodical income (i.e. interest, dividend, etc.) from the investments and regularly
sells the investment in case of favorable market conditions. Such investments have been classified as non-

current investments in the financial statements.
23. 26