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On 1 May 20X4, Tiles made a loan of $20 million to a key supplier. The loan is due to
be repaid at par on 30 April 20X7. Interest is charged in arrears at 2% per annum.
Market rates of interest are currently 8%. Tiles recorded a financial asset at
$20 million and recognised the interest received during the year in profit or loss. Any
adjustments required to profit in respect of this transaction should be presented in
investment income.How should this be accounted for
You need to measure this financial asset at amortised cost model .
here the finance income would be calculated by applying the effective rate of 8% to the opening balance of FA increasing the FF and cash received cakculated by applying the nominal rate of 2% to the nominal amount of FA thus reducing the FA.so
opening FA
+finance income
-cash received
=closing FA.
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