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Dear Tutor,
Could you please explain why the loan should be treated as financial instrument under IFRS 9 in the example below? What part of the question indicates that the loan is financial asset? is it the fact that the loan is repaid with premium?
A loan of 60 million was taken out on 1 Aug 2013 to help finance the acquisition. The loan carries an annual interest rate of 6%, with interest payments made annually in areas. The loan will be repaid in 20 years at a premium of 5 million.
Thank you in advance and kind regards,
Extract from Investopedia website:
‘BREAKING DOWN ‘Financial Instrument’
Financial instruments can be real or virtual documents representing a legal agreement involving any kind of monetary value. Equity-based financial instruments represent ownership of an asset. Debt-based financial instruments represent a loan made by an investor to the owner of the asset.’OK?
From your original post:
“A loan of 60 million was taken out on 1 Aug 2013 to help finance the acquisition.”
From my reply to your original post:
“Debt-based financial instruments represent a loan made by an investor to the owner of the asset.”
Your original question:
“What part of the question indicates that the loan is financial asset?”
This bit:
“A loan of 60 million was taken out on 1 Aug 2013 to help finance the acquisition”
OK now?
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