12-03-2009, 04:09 PM
Dear
IFRSs are not supposed to be applied on immaterial items. I am of the view that if loans given to employees in aggregate do not make up a material figure then you should state them at cost (carrying amount) with a disclosure that fair valuation under IAS 39 has not been done due to immaterial amounts.
However, if you feel like doing so t every cost, following accounting enteries will be passed
At the time of disbursement of loan
First entry
....Loan account (debit)
.........Cash/bank account (credit)
(at actual disbursement amount)
Secodn entry
....Finance cost (debit)
..........Loan account (credit)
(this entry will be made for the fair value effect over 6.67 years (Rs 3000 per yer) period discounted at 10 percent that is assumed to be open market rate)
At the end of first reporting period
......Loan account (debit)
.............Other operating income (credit)
This entry will be passed at each reporting period to proportionately reverse the fair value loss booked above (in second entry) over the entire period of loans i.e. 6.67 years approxmately.
This entry will bring the complete balance of Loan account back over the entire period.
When recovery is made
......Cash/bank account (debit)
..............Loan account (credit)
Sometimes loan recoveries are adjusted against Salaries Payable accounts and not settled in cash. In such situation last entry may be modified accordingly.
If you know how the figures will arrive at, let me know. This will require a bit of calculation of fair value and preparation of an amortization schedule.
I hope you can do it at your own.
Regards,
KAMRAN.
IFRSs are not supposed to be applied on immaterial items. I am of the view that if loans given to employees in aggregate do not make up a material figure then you should state them at cost (carrying amount) with a disclosure that fair valuation under IAS 39 has not been done due to immaterial amounts.
However, if you feel like doing so t every cost, following accounting enteries will be passed
At the time of disbursement of loan
First entry
....Loan account (debit)
.........Cash/bank account (credit)
(at actual disbursement amount)
Secodn entry
....Finance cost (debit)
..........Loan account (credit)
(this entry will be made for the fair value effect over 6.67 years (Rs 3000 per yer) period discounted at 10 percent that is assumed to be open market rate)
At the end of first reporting period
......Loan account (debit)
.............Other operating income (credit)
This entry will be passed at each reporting period to proportionately reverse the fair value loss booked above (in second entry) over the entire period of loans i.e. 6.67 years approxmately.
This entry will bring the complete balance of Loan account back over the entire period.
When recovery is made
......Cash/bank account (debit)
..............Loan account (credit)
Sometimes loan recoveries are adjusted against Salaries Payable accounts and not settled in cash. In such situation last entry may be modified accordingly.
If you know how the figures will arrive at, let me know. This will require a bit of calculation of fair value and preparation of an amortization schedule.
I hope you can do it at your own.
Regards,
KAMRAN.
