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Hello,

I am trying to understand the treatment for changes in loan payments.

<Please refer to the attached PDF>
At initial measurement, loan receivable was calculated with expectations of loan being paid only at the year of the loan expiry in 6 years time.

However, in year 2, the loan was paid partially. Hence I remeasured the loan receivable amt to the PV of the new payment cashflows which results in a gain on loan. Is my accounting entries correct for year 2? Is this gain considered interest income?

Are you sure that this loan bear no interest so every year there isn't cash from interest that comes in ?

There is interest but as the loan is an intercompany loan, there's no loan/interest payments needed until expiry. Are my entries correct in such a situation?

What's the initial amount, interest rate (is 5% market rate or nominal interest rate?), is there any transactions costs ? and does the interest will be carried forward producing interest on itself ?

have you reversed engineered a final £1200 repayment, charging 5% interest, to get to an initial loan of £895?

Yea, the initial amount seems weird, I've mostly seen intercompany loan with rounded numbers. 1 200 LC seems like the initial amount ?

sgaccountant I would do it the simple way, if the initial amount is really 895.46 and interest rate is 5% than the first year I would :
Dt Loan 895.46
Cr cash 895.46

at 31.12.N:
Dt Loan 45
cr interest 45

at 01.01.N+1:
dt cash 50
cr loan 50

at 31.12.N+1 :
dt Loan 45 (940-50)*5%
cr interest 45

JRSB wrote: ↑14 May 2022, 18:00 have you reversed engineered a final £1200 repayment, charging 5% interest, to get to an initial loan of £895?

Yes it was reversed engineered just for illustration purpose.

Leo wrote: ↑14 May 2022, 18:14 sgaccountant I would do it the simple way, if the initial amount is really 895.46 and interest rate is 5% than the first year I would :
Dt Loan 895.46
Cr cash 895.46

at 31.12.N:
Dt Loan 45
cr interest 45

at 01.01.N+1:
dt cash 50
cr loan 50

at 31.12.N+1 :
dt Loan 45 (940-50)*5%
cr interest 45

This looks interesting. May I ask how will your amortisation table clear to 0 without revising the liability amount?

I have uploaded my calculations excel here for reference https://www.mediafire.com/file/to96zymj ... .xlsx/file

I'm going to receive 1 136 at year 6 not 1 150, simply because I've received 50 at the end of year 1 so for the period after year 1, I won't receive any interest capitalisation related to the reimbursement of the 50. That makes it 50 * 1.05^5 = 64 LC, and 1 200 - 64 = 1 136.

Does it make sense ?