Page 43 - 23. COMPILER QB - IND AS 109_32

Loss has decreased to 30,000. In substance it is a gain of 20,000

iv. Accounting on 30th September 2017

Particulars Dr. (Rs) Cr. (Rs)
Derivative financial liability A/c Dr. 30,000
Derivative financial asset A/c Dr. 24,000

To Profit and Loss A/c 54,000
(Being gain on mark to market of forward contract booked as derivative financial asset and
reversal of derivative financial liability)

v. Accounting on 31st December 2017
The settlement of the derivative forward contract by actual purchase of USD 40,000
Particulars Dr. (Rs) Cr. (Rs)
Cash (USD Account) (USD 40,000 x Rs 62) Dr. 24,80,000

Profit and loss A/c Dr. 1,44,000
To Cash (USD 40,000 x Rs 65) 26,00,000

To Derivative financial asset A/c 24,000
(Being loss on settlement of forward contract booked on
actual purchase of USD)

Q28 (Nov 18 - 4 Marks)

NAV Limited granted a loan of Rs120 lakh to OLD Limited for 5 years @ 10% p.a. which is Treasury bond
yield of equivalent maturity. But the incremental borrowing rate of OLD Limited is 12%. In this case, the loan
is granted to OLD Limited at below market rate of interest. Ind AS 109 requires that a financial asset or
financial liability is to be measured at fair value at the initial recognition. Should the transaction price be
treated as fair value? If not, find out the fair value. What is the accounting treatment of the difference
between the transaction price and the fair value on initial recognition in the book of NAV Ltd.? Present value

factors at 12%:
Year 1 2 3 4 5
PVF 0.892 0.797 0.712 0.636 0.567

SOLUTION
Since the loan is granted to OLD Ltd at 10% i.e. below market rate of 12%. It will be considered as loan given

at off market terms. Hence the Fair value of the transaction will be lower from its transaction price & not
the transaction price.

Calculation of fair value

Year Future cash flow Discounting Present value (in
(in lakh) factor @ 12% lakh)
1 12 0.892 10.704
2 12 0.797 9.564

3 12 0.712 8.544

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