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my question is as follows
On 1 January 20X1, Goodie Ltd. provided a loan to its employee Mr. Jones amounting to CU 20 000 at interest rate of 1% p.a., repayable in 3 installments of CU 6 800 on 31 December 20X1, 31 December 20X2 and 31 December 20X3.
The market interest rate on similar loans is 5%.
How should Goodie Ltd. recognize and measure this loan initially and subsequently?my question how do we account for loan to employee at below market or zero interest rate?
a) do we need to discount it? and will we recognize the difference between PV and CU20,000 immediately in P n L?
b )what if employee leave in x1 but can pay after he leaves?
c) what if he needs to pay immediately at market interest rate if he leaves early?
d) please guide me also whether projected unit credit method is included in syllabus?
a. You should probably discount it
b. There is no answer to this question. You would make sure that you’ve got the money
c. I expect that there would be an adjustment in the profit and loss account. This would be the difference between the carrying amount and the cash received.
d. Only relevant if you are sitting an exam to be an actuary
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