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Hello, I have a question about IFRS 9.
“A loan of $60 million was taken out on 1 August 20X3 to help finance the acquisition. The
loan carries an annual interest rate of 6%, with interest payments made annually in arrears.
The loan will be repaid in 3 years at a premium of $5 million”The question:
1) What is the premium $5m (if during 3 years, there are no interest rate charged and after 3 years, the payment of $65m)2) How to calculate this question, if you can, please show me the specific calculation.
Thanks
Hi,
You are correct in your understanding of the premium, in that the loan will be repaid at $5 million above its par value of $60 million, i.e. $65 million.
To do the accounting then we would need the effective rate of interest on the loan, which is not given in the question. You need to recognise the initial loan at $6m and then charge interest based upon the coupon rate, with the 6% annual payments reducing the amount of the loan.
If this is all done correctly using amortised costs then the loan balance at the end of three years will be $65 million.
Thanks
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