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
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IFRS 9
4y ago#1Hi,
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
thanks tutor
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