UK Help please


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Hi

Hoping someone can help me with a query...

How would you account for an equity home loan or grant in the financial statements?

Many thanks
 

bklynboy

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Until its used there is no accounting. If you draw down on loan its debit cash and credit Loan Payable (assuming you are the borrower).
 
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What if this loan is provided to the public to help improve their home to an acceptable standard and in some cases once their home is sold they need to repay this loan? The money that is repaid will be used for capital expenditure.

How would you account for this on the balance sheet to start with and then how would account for the repayments?
 

bklynboy

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I assume you are the lender. No accounting until loan is issued. Once issued its a receivable on your books that you have to test for recoverability. Repayments I assume are part interest and part principal (though not sure from your description) and record as such - principal reduces loan receivable interest goes to income.

Is this real world or just a general question?
 
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I assume you are the lender. No accounting until loan is issued. Once issued its a receivable on your books that you have to test for recoverability. Repayments I assume are part interest and part principal (though not sure from your description) and record as such - principal reduces loan receivable interest goes to income.

Is this real world or just a general question?
Real world...

There is no interest on the loan and as an example we would take a share of the loan once the property is sold? Or if conditions are breached the repayment will need to be made immediately? Most loans are repayable but all with conditions.
 
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bklynboy

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Not fully clear what this loan is though but it sounds like you give them to low income or other needy families to invest in renovating their homes. Loan is repaid when they sell the home (assuming they can sell high enough to recover the funds). I am also assuming the loan is a first or second lien on the property so if not reapid you can attach to the underlying real estate?

To me it sounds a lot like a normal mortgage loan with no interest being incurred and repayment terms are upon sale if home or if not used according to contract terms repayable immediately. If correct I would account similar to a mortgage loan and set up an asset. For US GAAP (and I believe IFRS) you still have to record imputed interest since loans have a time value component so there will be income each period - not sure how you determine length of time to record interest over if payable only upon sale. Recoverability of the asset still needs to be performed.

Is there a website that you can point me to that helps explain what it is you are doing?
 

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