Loan Interest Accrual - Best practice in case of loan extension

[adm]

Hello,

I would like to get some advice of what the best practice should be with regards to loan interest accrual when the schedule dates (instalment dates) change following an extension request by the borrower.

I am attaching the full loan schedule and scenario (unfortunately I am unable to attach excel, only images), which can be summarized as follows:
1- The loan schedule is calculated as Declining Balance and Equal Instalments (similarly to PMT formula in excel) - this method assumes constant instalment intervals - with monthly instalments
2- Scheduled Interest is not subject to change/recalculation following early payment, late payment or for example like in this case an extension. It remains as is as per initial agreement/contract
3- Loan Accrual is done daily, meaning every day I will create the following entry: Debit Accrued Interest Receivable, Credit Interest Income
4- Loan Accrual Amount is calculated considering every instalment period and instalment scheduled interest as (Scheduled Interest)/(Number of days between instalment dates)
5- The loan is overdue (e.g. first instalment is due on 20 November was not paid)
6- The client asks for a loan extension between two instalment periods (e.g. between instalment 1 and 2 on November 27)
7- The first overdue unpaid instalments is moved into the future and all subsequent instalments are moved as well following monthly repayment frequency (e.g. instalment number 1 is moved to 10 December, instalment number 2 to 10 January and so on)

My questions are:
- Should there be any adjustment entry for Accrued Interest Receivable?
- How should loan interest accrual be calculated, following the loan extension?

Looking forward to any feedback.

Thanks

[Marek Muc]

Your post is a bit lengthy!
please take a look at https://ifrscommunity.com/knowledge-bas ... cash-flows and get back to us with some more conceptual questions, ok?

[JakobLavrod]

This might be a little bit off topic, but as the credit risk analyst, I would be somewhat concerned if the customer cited delays and wanted loan extension already on their first month. It is quite common to have policies requiring at least some months of payments before any forbearance measures can come into question...