Intra-group loans at below-market interest rates

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My company, which is a parent company, gave a no interest loan to its subsidiary

So I discounted the loan at present value and recorded the deference as an investment in the subsidiary

The entry was :

DR : loans (at present value )

DR : investment ( the deference)

CR: cash

My auditor asked me to provide him with the exact paragraph in IFRS that proves my treatment is right

So can you provide me with the standard and the paragraph that proves my treatment right
 

kirby

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Not really.
If you expect people to believe this is a valid loan there needs to be interest charged.
Can you go to the bank and get the same deal? No, you cannot.
So this is not an "arms- length transaction"
Just record interest - it is going to be eliminated in consolidation anyway.
 
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Not really.
If you expect people to believe this is a valid loan there needs to be interest charged.
Can you go to the bank and get the same deal? No, you cannot.
So this is not an "arms- length transaction"
Just record interest - it is going to be eliminated in consolidation anyway.
the interest is charged already as the present value of the loan is being charged with the market rate
Dr : loans (at present value )
Cr: interest income
at the end of the life time of the loan it will be at nominal value which will be collected from the subsidiary
 

kirby

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For one thing, the difference between the Loan at present value and the cash paid out is not an "Investment in subsidiary". It is just the deferred interest.
 

bklynboy

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I know I am late to the game but thought I would opine on this for the future. I believe IAS 39 has the answer and requires FV accounting. I think the entry is debit loan at PV (using current market rate for similar loans) credit cash for amount received. Difference is a debit to P&L viewed as a finance charge. Over the life of loan record interest income as a credit and debit the loan so that at maturity it equals the value of the initial loan extended. There is no impact on the investment carrying value.
 

Fidget

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It's IFRS 9 now. It finally replaced the parallel running of IAS 39 & IFRS 9 (for the umpteen years its been under construction) as of 1 Jan 2018. But the gist of it is the same where loan interest is below FV.
 
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