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Aron granted interest free loans to its employess on 1june2008 of 10 million.The loan will be paid back on 31 may 2010 as single payment by the employees. The market rate of interest for two year loan on both of the above dates is 6% per annum.The company is unsure how to account for the loan but wishes to to classify the loan as being accounted for at the amortized cost under ifrs 9 ?
Please solve this question i m so confused with the kit solution.When the loan is given we need to confirm that it satisfies both the business model test and the cash flow characteristics. In Aron, it does satisfy both, so we can deal with on an amortised cost basis.
Calculate the present value of the 10m interest free loan at the market rate, discounted for 2 years at 6%
That gives us a receivable (loan receivable in 2 years) of a present value of 8.9m. But cash of 10m has been spent so the remaining 1.1m needs to be debited. In this case, it’s a part of employee remuneration costs.
As each year now goes by, we need to unroll the discount at the rate of 6% and the calculated “interest” represents interest income. In the first year, the calculated amount is 8.9m x 6% = .534m and that amount will be debited to the asset and credited to Statement of Income as Interest
Is that ok?
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