Page 6 - 23. COMPILER QB - IND AS 109_32

3. The said loan is interest free and will be repaid as and when the YK Ltd. has funds to repay the Loan
amount.
4. Further the Company is also planning to grant interest free loan from YK Ltd. to KK Ltd. in the

subsequent period. What will be the accounting treatment of the same under applicable Ind AS?

Based on the same, KK Ltd. has requested you to suggest the accounting treatment of the above loan in the
stand-alone financial statements of KK Ltd. and YK Ltd. and also in the consolidated financial statements of
the group. Consider interest for only one year for the above loan.

SOLUTION
Scenario (i)

Since the loan is repayable on demand, it has fair value equal to cash consideration given. KK Ltd. and YK
Ltd. should recognize financial assets and liability, respectively, at the amount of loan given (assuming that
loan is repayable within a year). Upon repayment, both the entities should reverse the entries that were made
at the origination.
Journal entries in the books of KK Ltd.
At origination

Loan to YK Ltd. A/c Dr Rs 10,00,000
To Bank A/c Rs 10,00,000

On repayment
Bank A/c Dr. Rs 10,00,000
To Loan to YK Ltd. A/c Rs 10,00,000

Journal entries in the books of YK Ltd.
At origination
Bank A/c Dr. Rs 10,00,000

To Loan from KK Ltd. A/c Rs 10,00,000
On repayment
Loan from KK Ltd. A/c Dr. Rs 10,00,000

To Bank A/c Rs 10,00,000
In the consolidated financial statements, there will be no entry in this regard since loan receivable and loan
payable will get set off.

Scenario (ii)
Applying the guidance in Ind AS 109, a ‘financial asset’ shall be recorded at its fair value upon initial
recognition. Fair value is normally the transaction price. However, sometimes certain types of instruments may
be exchanged at off market terms (i.e., different from market terms for a similar instrument if exchanged
between market participants).

If a long-term loan or receivable that carries no interest while similar instruments if exchanged between
market participants carry interest, then the fair value for such loan receivable will be lower from its
transaction price owing to the loss of interest that the holder bears. In such cases where part of the
consideration given or received is for something other than the financial instrument, an entity shall measure

23. 5