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DEC 2018

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › DEC 2018

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by Kim Smith.
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  • December 29, 2018 at 10:01 am #499436
    iza1
    Participant
    • Topics: 115
    • Replies: 112
    • ☆☆☆

    Q1. There is a loan of 30 million and to repaid 34 million.

    Is the standard applicable , fin instru initially at fv and subsequently at amortised rate using effective interest ?

    December 30, 2018 at 8:40 am #499472
    Kim Smith
    Keymaster
    • Topics: 135
    • Replies: 8309
    • ☆☆☆☆☆

    Nothing is “initially at FV” with the exception of a granted asset which can be recognised at FV rather than $0 cost. Initially measurement of pretty much anything else is cost. So $30m received now and £34m to be repaid in 10 year years – no interest. All amounts and timings are fixed and certain – there is no need for this to be subsequently recognised at anything other than a “cost” model – remember that FV was “invented” to provide more relevant information than a cost model.
    So, as you say, this is a financial instrument, the relevant standard is IFRS 9 and the effective interest rate would be calculated in order to calculate the finance cost, which would increase each year and total $4m over 10 years. (Pre-standards on financial instruments the $4m would most likely have been spread evenly over 10 years.)

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