Page 57 - 23. COMPILER QB - IND AS 109_32

Q.37 (January 21 – 14 Marks)

Lovely Limited has a policy of providing subsidized loans to its employees for the purpose of buying 2 Wheelers
and 4 Wheelers vehicles. Simran, who is a Sales Executive, took a loan for a Four-wheeler vehicle from the
Company. The following were the terms of the loan:
- Principal Amount : Rs. 9,00,000

- Interest: 5% p.a. for the First Rs. 3,00,000 and 8% p.a. for the remaining amount.
- Loan disbursed date: 1st April 2017
- Loan Tenure: 3 Years
- Prepayment : Full or Partial payment at the option of the employee.

- Simran shall remain in service till the term of the loan ends.
- The Principal amount should be recovered in 3 equal installments at the end of each year and will be first
applied to 8% interest bearing principal.
- The accrued interest shall be paid on an annual basis.
The market rate of a comparable loan available to Simran is 12 % per annum.

Following table shows the expected contractual cash flows from the loan given to Simran.
(In Rs.)
Date Outflows Inflows: Principal

Principal Interest Interest Outstanding
Income 8% Income 5%
01.04.2017 (9,00,000) 9,00,000

31.03.2018 3,00,000 48,000 15,000 6,00,000
31.03.2019 3,00,000 24,000 15,000 3,00,000
31.03.2020 3,00,000 - 15,000 -

Simran pre-pays Rs. 1,00,000 on 31st March, 2019.
Following table shows the actual cash flows from the loan, considering the prepayment on 31st March 2019.
(In Rs.)
Date Outflows Inflows: Principal

Principal Interest Interest Outstanding
Income 8% Income 5%
01.04.2017 (9,00,000) 9,00,000

31.03.2018 3,00,000 48,000 15,000 6,00,000
31.03.2019 4,00,000 24,000 15,000 2,00,000
31.03.2020 2,00,000 - 10,000 -

You are required to pass journal entries in the books of Lovely Limited considering the requirements of Ind AS
109.

SOLUTION
As per requirement of Ind AS 109, a financial instrument is initially measured and recorded at its fair value.
Therefore, considering the market rate of interest of similar loan available to Simran is 12%, the fair value of

the contractual cash flows shall be as follows:

23. 56