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Hi !

A query regarding subsequent measurement of financial assets and liability at amortized cost under IFRS 9

Government provided long term, interest free loan on revolving basis for period of 5 year to company A for transfer of such loan to another company B. Two separate agreement sign between Government & company A and company A & company B on same terms as mentioned above. Question is that, whether such loan obligation and receivable in the books of company A will measure at amortized cost? Which time period? whether such loan also measured under IAS 20?

Interesting, why didn't the government grant the loan to Company B directly?

Firstly, I would check whether the offsetting criteria are satisfied to determine whether A should recognise this loan on a net or gross basis:
https://ifrscommunity.com/knowledge-bas ... struments/

As for the recognition of interest-free loan:
https://ifrscommunity.com/knowledge-bas ... ate-loans/

Actually, company A is Government own entity and company B is NGO.

In my view, such loan will not off set because two difference parties are engaged.

Company B audited financial statements, such loan is not measure at amortized cost. Just recorded at face value. Company A has not any benefit of such loan.

If we amortized both loan and receivables, there will no impact on profit / loss account. Revolving basis loan mean it will demand any time?

No, revolving usually means that the borrower can flexibly draw down and repay according to its liquidity needs.

What you suggest in such case, we amortized such loan and receivables?

In my view, it is not contain any element of Government grant, so IAS 20 will not apply because company A not obtain any relief or assistant from Government. It just received such loan and transfer the same to company B.

Yep, I wouldn't apply IAS 20 in company's A financial statements. IAS 20.2(c) excludes 'government participation in the ownership of the entity' as this funding is closely related to ownership IMO.

What are the terms of the loan between A and the government? For example, if company B defaults on the loan, what are the implication for A?

Extract of agreement between Government and company A as follow:

Government has advanced to the borrower (company A) amounts of Rs. 2000 million as interest free loan for subsequent transfer to the company B for granting of interest free loan to the un-employed individuals. In case of loan default, list of detailed un-employed individual will be provided to company A by the company B for onward submission to the Government.

It's not conclusive but it seems that A is just a pass-through entity for these funds, I would analyse it further but my initial assessment is that A is just an agent for the government in this instance and wouldn't recognise the principal amounts.

BTW which of the criteria for offsetting that I linked to previously isn't satisfied?

Two different agreement sign between Government vs company A, and company A vs company B.

Extract of agreement regarding repayment terms as follow:

"All payments will be made as per repayment schedule. Company A will transfer all payments received from company B to Government"

Yousaf wrote: ↑18 Aug 2022, 12:58 Two different agreement sign between Government vs company A, and company A vs company B.

which IAS 32 paragraph says that you can/should offset financial instruments contracted with the same party only?

As per IAS 32

A financial asset and a financial liability shall be offset and the net amount presented in the statement of financial position when, and only when, an entity:
(a) currently has a legally enforceable right to set off the recognized amounts; and
(b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

When an entity has the right to receive or pay a single net amount and intends to do so, it has, in effect, only a single financial asset or financial liability.

In our case, company A has no legally enforceable right to set off because company B is liable to pay such loan to company A, then company A pay such loan to Govt.

What is your point of view regarding " intends to realized the assets and settle the liability simultaneously" in our case ?

Extract of loan agreement between company A and Government as follow:

"Company A will transfer all payments received from company B to Government on monthly basis"

Hi!

In the case of pass-through, I would look at IFRS 9.3.2.5 to see if these conditions are valid (company A being the entity in this case, the government being the eventual recipients and the original asset being the loan receivables from company B):

9.3.2.5: When an entity retains the contractual rights to receive the cash flows of a financial asset (the ‘original asset’), but assumes a contractual obligation to pay those cash flows to one or more entities (the ‘eventual recipients’), the entity treats the transaction as a transfer of a financial asset if, and only if, all of the following three conditions are met.

(a) The entity has no obligation to pay amounts to the eventual recipients unless it collects equivalent amounts from the original asset. Short‑term advances by the entity with the right of full recovery of the amount lent plus accrued interest at market rates do not violate this condition.

(b) The entity is prohibited by the terms of the transfer contract from selling or pledging the original asset other than as security to the eventual recipients for the obligation to pay them cash flows.

(c) The entity has an obligation to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the entity is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents (as defined in IAS 7 Statement of Cash Flows) during the short settlement period from the collection date to the date of required remittance to the eventual recipients, and interest earned on such investments is passed to the eventual recipients.

See also https://ifrscommunity.com/knowledge-bas ... -transfers

All of three conditions are fulfill in our case. Receivable from company B is qualify for derecognition.

As per IAS 32, "In accounting for a transfer of a financial asset that does not qualify for derecognition, the entity shall not offset the transferred asset and the associated liability". So, company A can offset payable to Government with receivable from company B.