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Hi Sir ,
If parent company loan USD 1 MILLION for 6 years with interest free in Dec2013.In accounting standard , we need to discounted the USD 1 million ,right?
If let say the implicit interest for 6 years total up is USD 400K.
Assuming the year end 31 Dec 2013.
The entry given for year 2013 A/C are as follows:
First accounting entry:
Dr. Bank –US$ 1 MILLION
Cr. Loan Payable –US$600K (1MILLION-400K)
Cr. Capital reserve–US$400Second accounting entry:
Dr. Loan Payable –US$400
Cr. Capital reserve–US$400Is first and second entries make sense?
NO!!!!! Now you have a balance on the loan payable account of just US$200k
Your second entry must surely be Dr Finance charges (unrolling the discount) and Cr Parent company loan
Continue doing that for the period of the loan and, when the time comes to repay, you will be showing a loan account liability of US$1m
So then Dr Loan account US$1m and Cr Cash US$1m
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