Interpretation of "Loan term"

[Yousaf]

Hi,

Government of Pakistan (GoP) has provided long term loan to another Government own entity 'A'. Repayment of loan agreed as till dissolution of A.

The GoP has right (as per rules) to Winding up the A at any time.

Question:

1. What will be the loan term as per IFRS 9 for subsequent measurement of such loan at amortized cost ?
2. Whether, such loan treated as part of equity ? or liability ?

[JRSB]

https://ifrscommunity.com/knowledge-bas ... vs-equity/

[JakobLavrod]

Hi Yousaf! When you say " Repayment of loan agreed", do you mean that there is a specific payment plan of CF from A back to the government? It is a huge difference between having a loan that is to be repaid "eventually" and a loan with a specific contractual cashflows. Is the interest rate on the loan market rate or lower?

Thanks in advance for the clarification.

[Yousaf]

Thanks for your prompt reply.

Sir, I extract the statement form the document as :

"Loan will be repay on dissolution (winding up) of the entity A". It is interest free loan.

I think , Its mean it has indefinite loan term / repayment is conditional and subject to winding up of the entity A / no repayment terms has been define between both parties.

Event of winding up of the entity A is in the control of the GoP.

Its means, contractual, interest free loan and repayable subject to winding up of entity A.

[JakobLavrod]

As linked by JRSB, this is should probably be seen as an equity contribution from a government, so IAS 20. I know that there have been multiple such threads on this forum as well

[JRSB]

Seems like almost the definition of equity doesn't it, although is it repaid in preference to shareholders or alongside? Sounds like company and owner are both government so it won't make much difference perhaps