Dereformer:
A loan was advanced to a related party at an interest rate less than the market rate. At the inception of the loan, it was fair valued in line with IAS 39 and IFRS 9. The loan tenure is 3 years.

The loan has been rescheduled and a moratorium period of six months granted after 1 year 7 months into the loan period.

Now the question, what is the effect of the rescheduling on the fair value and subsequent accounting for the loan? Does the loan need to be fair valued again bearing in mind that FV is a function of time?



Mod please take this to home page.

Tolakay:
Ok... Waiting for answers

fotogirl:
Are you accounting as the loan giver(financial asset) or loan receiver( financial liability) , we need to perform business model/ cash flow test to determine whether d loan should be carried at fair value or amortised cost by finding the reason why they are holding the loan.

Is it for trading purpose or to get specified income at a certain date.





































Pls answer that to know the proper way to account for it.

Dereformer:


We are accounting from the perspective of the loan receiver ie financial liability.
Note that the main import of the question is the effect of rescheduling on the already fair valued loan.

Should the loan be fair valued again bearing in mind the extention arising from the rescheduling?
Answers should be supported with relevant IFRS, IFRIC and/or the conceptual frame work.

NB. the loan is already accounted for at amortised cost.

fotogirl:
I just read it again and saw you put it in the note that the loan is carried at amortised cost. I think I understand now.
The loan is accounted for using amortised cost. At initial recognition the Fair value is used to calculate the amortised cost. Now that the loan has been rescheduled you want to know if u need to get the current fair value to calculate another amortised cost.
Am I right?

fotogirl:
I believe you are wrong in accounting for this financial liability

1- the fv of the loan is the 10m minus any transaction cost

2- the main issue with related party transaction is disclosure

3- pv of the loan is not the fv, fv is the consideration received

4- the effective interest multiply by the fv minus transaction cost is your finance cost that should be deducted in sopl

5- loan amount of 10m minus pv of loan amount recorded in profit or loss is wrong.

To your question, Ifrs 9 is silent on treatment of amortised cost in a case of reschedule, but what I think you should do is recalculate the effective interest over the remaining years and apply it to the carrying amount before rescheduling.

I hope you get this. How about calling a chartered accountant close to you.

fotogirl:
OK thanks

fotogirl:
After my research, I saw that expert has been using their judgement to account for below market rate related party loan the way you said.
No Ifrs to back it up, why not use your judgement to account for the reschedule.
I.e Fair value again over the shorter or longer term take difference to sopl, perform amortised cost on the fv loan to get finance cost.
Take it as a change inaccounting estimate, so account for it prospectively.

That is just my take on it o. Ask expert.

fotogirl:
I mean no Ifrs to back the reschedule up. If there is you wouldn't be asking your question now, you will just go to ifrs 9.

fotogirl:
Yes, and I guess you are one.

Dereformer:


Yes.

fotogirl:
In practice or industry?