Page 61 - 23. COMPILER QB - IND AS 109_32

interest bearing principal.
● The accrued interest shall be paid on an annual basis.
● Mrs. B must remain in service till the term of the loan ends.
● The market rate of a comparable loan available to Mrs. B, is 12% per annum.

● Give your calculations by adopting the present value factor as:
31.12.2019 31.12.2020 31.12.2021 31.12.2022 31.12.2023
0.8929 0.7972 0.7118 0.6355 0.5674
Following table shows the contractually expected cash flows from the loan given to Mrs. B.
(Amount in Rs)

Inflows
Date Outflows Principal Interest Interest Principal
income income outstanding
(7%) (4%)
1st January 2019 (25,00,000) 25,00,000
5,00,000 1,05,000 40,000
31st December 2020 5,00,000 70,000 40,000 15,00,000
31st December 2021 5,00,000 35,000 40,000 10,00,000
31st December 2022 5,00,000 - 40,000 5,00,000
31st December 2023 5,00,000 - 20,000 -
Mrs. B pre-pays Rs 5,00,000 on 31st December 2020, reducing the outstanding principal as on date to Rs
10,00,000.

Following table shows the actual cash flows from the loan given to Mrs. B, considering the prepayment event
on 31st December, 2020: (Amount in Rs)
Inflows
Date Outflows Principal Interest Interest Principal
income income outstanding
(7%) (4%)
1st January 2019 (25,00,000) 25,00,000
31st December 2019 5,00,000 1,05,000 40,000 20,00,000
31st December 2020 10,00,000 70,000 40,000 10,00,000
31st December 2021 5,00,000 - 40,000 5,00,000
31st December 2022 5,00,000 - 20,000 -
31st December 2023 - - - -
Record the journal entries (up to 31st December, 2020) in the books of Softech Limited considering the

requirements of Ind AS 109.
SOLUTION

As per 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 Mrs. B is 12%, the fair value of the
contractual cash flows shall be as follows:
Inflows
Date Principal Interest Interest Discount PV
income @ income @ factor
7% 4% @12%
31st December 2019 5,00,000 1,05,000 40,000 0.8929 5,75,921
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