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Investor has an investment in associate. Investor has also advanced an interest bearing (market rate) 5 year loan to the associate, with interest historically accruing on the balance sheet and recognised as income in the profit and loss account.

If in the current financial year the parent were to waive the historic accrued loan interest, would the double entry be:

Cr Loan debtor on balance sheet
Dr P&L

? Or something else

Thanks

When you write to "waive the historic accrued loan interest", does it mean that the associate will no longer have to pay it? In such a case, I guess this would classify as a loan modification.

I guess the other option for the Debit is to increase the investment in associate by your share as a capital contribution (like if it was a subsidiary) but I don't know the answer I'm afraid!

This is a modification and the impact should be taken immediately to P&L. Thus, your suggested entries are correct.

However, you need to understand why the investor is waiving interest, because that will have implications going forward on how to determine the expected credit loss on this loan. If the waiver was given because of an increase in the credit risk of the associate, then the loan should most likely move to stage 2 and an expected credit loss should be recognised on a lifetime basis.

This might also be considered an equity contribution to the associate, in which case the debit entry would be treated as an increase in the investment accounted for under the equity method. What are the economic reasons for waiving the previously agreed interest? Also, if this associate is loss-making, you may need to allocate the losses to this loan as shown in https://www.ifrs.org/content/dam/ifrs/p ... erests.pdf

I would agree with the alternative treatment if this was an entity under common control, but that doesn't seem to be the case. This is an associate. I'm not sure if it would be appropriate to consider the waiver as a an increase in the investment in the associate. Also, even if that treatment was acceptable, that additional investment would most likely be impaired, also ending up immediately in P&L.

That's why I asked for the business rationale for this decision. It'll help to clarify whether it's an implied impairment loss or a capital contribution.