ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments
Halden plc has a loan receivable with a gross carrying amount of $1,000,000 at amortised cost, effective interest rate 8%. It is credit-impaired at the start of the year with a loss allowance of $300,000. During the year, no cash is received. Halden reports to the period end with the allowance unchanged. What interest revenue is recognised for the year?
Interest revenue is $56,000, being 8% of the net carrying amount of $700,000. For credit-impaired assets in stage 3, the effective interest rate is applied to amortised cost after deducting the loss allowance, not to the gross carrying amount.
- A$56,000Correct
- B$80,000
- C$24,000
- D$0
Explanation
For a credit-impaired (stage 3) asset, interest revenue is calculated on the amortised cost net of the allowance: ($1,000,000 − $300,000) × 8% = $56,000. Using the gross amount gives $80,000, which is the stage 1 and 2 treatment.
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