Page 50 - 23. COMPILER QB - IND AS 109_32

Q33 (Nov 19 – 4 Marks)

Make necessary journal entries for accounting of the security deposit made by Admire Ltd., whose details are
described below. Assume market interest rate for a deposit for similar period to be 12% per annum.
Particulars Details

Date of Security Deposit (Starting Date) 1st April, 2014
Date of Security Deposit (Finishing Date) 31st March, 2019
Description Lease

Total Lease Period 5 years
Discount rate 12%
Security deposit (A) 20,00,000
Present value factor at the 5th year 0.567427

SOLUTION

The above security deposit is an interest free deposit redeemable at the end of lease term for Rs 20,00,000.
Hence, this involves collection of contractual cash flows and shall be accounted at amortised cost.
Upon initial measurement
Particulars Details
Security deposit (A) 20,00,000

Total lease period (Years) 5
Discount rate 12.00%

Present value annuity factor 0.567427
Present value of deposit at beginning (B) 11,34,854
Prepaid lease payment at beginning (A-B) 8,65,146

Journal entry at initial recognition
Particulars Amount Amount
Security deposit A/c Dr. 11,34,854

Prepaid lease expenses A/c Dr. 8,65,146
To Bank A/c 20,00,000
Subsequently, every annual reporting year, interest income shall be accrued @ 12% per annum and prepaid

expenses shall be amortised on straight line basis over the lease term.

Following table shows the amortisation of security deposit based on discount rate:
Year Opening balance Interest @12% Closing balance (A) =

(A) (B) (A) + (B)
1 11,34,854 1,36,183 12,71,037
2 12,71,037 1,52,524 14,23,561

3 14,23,561 1,70,827 15,94,388
4 15,94,388 1,91,327 17,85,715
5 17,85,315 2,14,685* 20,00,000

*Difference is due to approximation.
23. 49