IFRS 9 Question 6

QUESTION 6: IFRS 9 – FINANCIAL INSTRUMENTS

Rich Limited made a 12% loan of Rs.500,000 to Poor Limited on January 1, 2005. Loan is payable
after six years. The coupon and effective rate of interest are the same and interest is received at
the end of each year.

On January 1, 2010, Rich Limited discovered that Poor Limited was facing financial problems. It
was estimated that Poor Limited would be able to pay only Rs.336,000 instead of Rs.560,000 at
the end of 2010.

Required:
(i) How above situation will be accounted for in the financial statements of Rich Limited on
January 1, 2010.
(ii) What amount will be recognised as interest income for the year ended December 31, 2010.
(05)
ICMAP 501 – May 2010 – Q4c

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IFRS 9 Question 6

ANSWER TO QUESTION 6: IFRS 9 – FINANCIAL INSTRUMENTS

Part (i)
The carrying amount of loan shall be restated to revised amount of loan’s recoverable amount of
Rs. 336,000 x (1.12)-1 = Rs. 300,000 and impairment loss of Rs. 200,000 (i.e. Rs. 500,000 –
300,000) shall be charged.

Part (ii)
The amount of interest income for the year is Rs. 300,000 x 12% = Rs. 36,000.

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