Intercompany loan below market rate

[HaDo]

Hi all,

I have a question regarding intercompany loan at below market rate. For example, if parent company lent to subsidiary USD 5m at 1% per annum in 3 years. Market rate is 3%. What are journal entries for each year?

[JakobLavrod]

I am not fully certain on the exact entires, but the idea is that you split the loan below market rate into a loan at market rate and a capital injection from the parent. The payments each year from the subsidiary are then payments on the market rate loan. In your case, a rough estimate is that the interest-free loan will be around 4.86 MUSD and 0.14 of capital contribution from parent (using frequent payment assumption, but a more correct answer can be obtained if one knows how often payments are made and if the loan is an annuity, straight line amortization, bullet or similar)

[JRSB]

https://ifrscommunity.com/knowledge-bas ... ate-loans/

[HaDo]

Thank you very much, Jakob.