how to amortise state grant from below interest rate?

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ladislav73
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Joined: 21 Jun 2021, 13:14

how to amortise state grant from below interest rate?

Post by ladislav73 »

Hello there,

I am not sure in the case that I have a loan provided by state at 3% interest rate but the fair value rate is at 5% I get it how to calculate the grant awarded at the beginning (at an amount as a difference between discounted 5% loan present value and 3% value of loan. This amount should by initial carring amount of a grant. Can I amortise this grand based on proportionate amounts stems from fair value 5%interests base? It means:

1. year

initial grant amount x 5% fair value interest first year/ (summary of all fairvalue interests over time)

2. year

initial grant amount x 5% fair value interest the second year / (summary of all fairvalue interests over time)

.......
ladislav73
Posts: 4
Joined: 21 Jun 2021, 13:14

Re: how to amortise state grant from below interest rate?

Post by ladislav73 »

there is an example, the amount of 50.204 I understand, no problem, but what to do with this amount in following years? There is no clue "see accounting for gov grants:(

DR CR
Cash 900,000
Financial liability (loan) 849,796
Government grant 50,204

How exactly do we recognise this government grant? See accounting for government grants.
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Marek Muc
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Re: how to amortise state grant from below interest rate?

Post by Marek Muc »

ladislav73 wrote: 23 Jun 2021, 10:04 there is an example, the amount of 50.204 I understand, no problem, but what to do with this amount in following years? There is no clue "see accounting for gov grants:(
there is some "clue":
https://ifrscommunity.com/knowledge-bas ... ssistance/

why did your company receive this below market interest rate loan? what is the context?
ladislav73
Posts: 4
Joined: 21 Jun 2021, 13:14

Re: how to amortise state grant from below interest rate?

Post by ladislav73 »

The only hint to follow it if I am reading well is "Government grants are recognised in P/L on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate (IAS 20.12)." It induces me to the process it, how as I stated in the example as a systematic basis, that is interest rate 5% recognised each year. It is only test from IFRS specialist when preparing for the exam. I understand that if is given some purpused of the below market rate it should be allocated to relevant active on systematic basic.
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Marek Muc
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Re: how to amortise state grant from below interest rate?

Post by Marek Muc »

it could be also that this loan is aimed at financing an acquisition of an asset
anyway, in real life you need to know what is the purpose of the grant to properly account for it
ladislav73
Posts: 4
Joined: 21 Jun 2021, 13:14

Re: how to amortise state grant from below interest rate?

Post by ladislav73 »

I makes sense, I get it. Thank you for a clue.
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