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Our company has given an interest free loan of $50,000/= to a third party which is payable in 02 installments in two years without any interest. I just wander how to account for this under IFRS? What happens to the interest we are forgoing?
in IFRS 9 - Financial Instruments by
edited by

2 Answers

+1 vote
You should discount the loan given at the market interest rate to find the fair value of loan and record the loan at fair value. The difference between the fair value and the amount paid could be recognized as a finance expense and charged to income statement or you may also defer this charge and amortize over the period of two years.

Over the period of the loan, interest receivable will be added to the loan using the effective interest method. the interest income for a year equals the carrying amount of the loan (financial asset) at the beginning of a period multiplied by the effective interest rate for the period.

After the two years period your loan account will get back to $50,000/= which will be set off against the repayment.
by Level 5 Member (25.1k points)
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by Level 5 Member (11.6k points)