revolving credit facility before draw down

[RedHill]

Dear community,

would you please advise how banks are accounting for their obligation to issue a loan within a revolving credit facility agreement before any payments are done. Is it purely off-balance?

My issue is slightly different: need to understand how to account for a signed commitment to pay to an investment fund, which is executed upon request, but it is too specific I guess. I hope understanding the treatment of revolving credit facility can help to understand what should be done in my specific case.

Thanks a lot in advance!

[JRSB]

It's subject to ECL.

[Marek Muc]

yep
https://ifrscommunity.com/knowledge-bas ... ommitments

keen to hear more about your specific scenario

[RedHill]

Thanks, but is not it controversal ?
From the one hand : " A loan commitment is a commitment to make a loan in the future at a specified rate. This meets the definition of a derivative. " in such a case we need to recognize it FVTPL
From another forum says: "So answering your question, you don't have to book anything until the loan is drawn. "

Talking about my case I do not have much to add: there is a committed amount, which we should pay to a fund as soon as they claim it but without an understanding when it can happen. I believe based on what I read it can be recognized like a derivative and in this case some P&L impact is possible, or I can leave it without any entries until the first payment is done.
Although I am hesitating now if it can be compared to a loan : in return we get some assets, which is not happening with a loan. Moreover it is done in a different than operational currency: the payment is in USD, but entity's currency is EUR. And the internal discussion now is if there is a need to show FX effect from the date when commitment was agreed, to the date of payment.

[Marek Muc]

Although I am hesitating now if it can be compared to a loan : in return we get some assets, which is not happening with a loan. Moreover it is done in a different than operational currency: the payment is in USD, but entity's currency is EUR.

Would you mind elaborating on the terms a bit more?

[RedHill]

We are subscribing for an investment plan in an investment fund. We commit to pay say 1 mln USD upon fund's request. Our functional currency is EUR. When payment is done we will get an asset - some share (or portfolio?) in this investment fund. Idea is to recognize in P&L FX gai/loss since the commitment date and the payment date.

[DJP]

Loan commitments are derivatives in theory, but they are explicitely scoped out of IFRS 9 (see paragraph 2.1 (g)). There are only a few cases where you would account for them at FVTPL (see paragraph 2.3). As mentioned above, the issuer needs to record ECL impairment.

[Marek Muc]

This appears more like a commitment to acquire an investment than a loan. Can you share your reasons for thinking it's a loan, RedHill?

[RedHill]

This appears more like a commitment to acquire an investment than a loan. Can you share your reasons for thinking it's a loan, RedHill?

Hi Marek, the commitment is similar in its nature to the loan commitment, but of course the instrument itself is not a loan.

[Marek Muc]

So it's not a loan commitment You just committed to purchase an asset at a future date, probably an equity investment, unless it's puttable. Normally you don't recognise it in financial statements until you obtain control over it, unless there's something more to this transaction (e.g. it's with a related party with off-market terms, the price is fixed but the delay in obtaining the investment is significant etc). If the transaction is denominated in a foreign currency, you still don't recognise the foreign currency part separately, see https://ifrscommunity.com/knowledge-bas ... n-currency

PS. Please don't quote preceding posts https://ifrscommunity.com/ifrs-forum-qu ... in-replies