Page 24 - 30. COMPILER QB - IND AS 101

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proportionate basis. Further, on 31 March 2024 when the loan has to be repaid, Rs. 2.50 crore should be
presented as a deduction from property, plant & equipment.
Discuss the above treatment and share your views as per applicable Ind AS.

Solution
Requirement as per Ind AS:

A first-time adopter shall classify all government loans received as a financial liability or an equity
instrument in accordance with Ind AS 32. A first-time adopter shall apply the requirements in Ind AS 109
and Ind AS 20, prospectively to government loans existing at the date of transition to Ind AS and shall not
recognise the corresponding benefit of the government loan at a below-market rate of interest as a
government grant.
Treatment to be done:

Consequently, if a first-time adopter did not, under its previous GAAP, recognise and measure a government
loan at a below-market rate of interest on a basis consistent with Ind AS requirements, it shall use its
previous GAAP carrying amount of the loan at the date of transition to Ind AS as the carrying amount of
the loan in the opening Ind AS Balance Sheet. An entity shall apply Ind AS 109 to the measurement of such
loans after the date of transition to Ind AS.

In the instant case, the loan meets the definition of a financial liability in accordance with Ind AS 32.
Company therefore reclassifies it from equity to liability. It also uses the previous GAAP carrying amount of
the loan at the date of transition as the carrying amount of the loan in the opening Ind AS balance sheet.
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It calculates the annual effective interest rate (EIR) starting 1 April 2020 as below: EIR = Amount /
Principal (1/t) i.e. 2.50/2 (1/4) i.e. 5.74%. approx. At this rate, Rs. 2 crore will accrete to Rs. 2.50 crore as at
31 March 2024.
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During the next 4 years, the interest expense charged to statement of profit and loss shall be:

Year ended Opening amortised Interest expense for the year (Rs.) @ 5.74% Closing amortised cost
cost (Rs.) p.a. approx. (Rs.)
31 March 2021 2,00,00,000 11,48,000 2,11,48,000
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31 March 2022 2,11,48,000 12,13,895 2,23,61,895
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31 March 2023 2,23,61,895 12,83,573 2,36,45,468
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31 March 2024 2,36,45,468 13,54,532 2,50,00,000
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An entity may apply the requirements in Ind AS 109 and Ind AS 20 retrospectively to any government loan
originated before the date of transition to Ind AS, provided that the information needed to do so had been
obtained at the time of initially accounting for that loan.
The accounting treatment is to be done as per above guidance and the advice which the company has been
provided is not in line with the requirements of Ind AS 101 .

Q13 (December 21 – 8 Marks)
Rainy Pvt Ltd is a company registered under the Companies Act, 2013 following Accounting Standards notified
under Companies (Accounting Standards) Rules, 2006. The company has decided to present its first financials
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under Ind AS for the year ended 31st March 2021. The transition date is 1 April 2019.
The following adjustments were made upon transition to Ind AS:
i) The company opted to fair value its land as on the date of transition. The fair value of the land as of
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