Page 15 - 33. FR RTP NOV. 22

At the end of the three-year lease term, the leased machinery will be returned to the lessor, who will record
the following entries:
Rs. Rs.

Inventory Dr. 10,000
To Lease receivable 10,000

Solution 3

The entity measures the loan on initial recognition at Rs. 4,32,000, which is the present value of the loan
(financial liability) — Rs. 5,00,000/(1.05)3. Rs. 68,000, the difference between the loan proceeds received Rs.
5,00,000 (the loan‖s face value) and present value of the loan Rs. 4,32,000, is a government grant and is
recognised immediately as there are no specified future performance conditions.
The amount recognised on day one will accrete to Rs. 5,00,000 over the three-year term using the effective

interest method.
Journal Entries
On initial recognition:
Rs. Rs.
Cash/Bank (financial asset) Dr. 5,00,000
To Loan (financial liability) 4,32,000
To Income (profit or loss) 68,000
(Being interest-free loan recognised at fair value and the
receipt of a government grant)

At the end of Year 1:
Rs. Rs.

Finance cost (profit or loss) Dr. 21,600
To Loan (financial liability) 21,600
(Being accretion of time value recognised on the financial
liability)

Year 2
Rs. Rs.
Finance cost (profit or loss) Dr. 22,680

To Loan (financial liability) 22,680
(Being accretion of time value recognised on the financial
liability)

Year 3
Rs. Rs.
Finance cost (profit or loss) Dr. 23,720

To Loan (financial liability) 23,720
(Being accretion of time value recognised on the financial
liability)

33.14