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CA Final · Financial Reporting · Classification and Measurement of Financial Assets and Financial Liabilities

Meridian Finance Ltd. has committed to lend ₹5 crore to a customer at an interest rate below the market rate. The commitment is not designated at FVTPL. Fee income recognised so far under Ind AS 115 on this commitment is ₹4 lakh, and the amount initially recognised was ₹20 lakh. The Section 5.5 loss allowance at the reporting date is ₹13 lakh. At what amount should the commitment be carried?

The commitment is carried at ₹16 lakh. Ind AS 109 requires the higher of the loss allowance (₹13 lakh) and the initial amount less cumulative income recognised (₹20 lakh minus ₹4 lakh, which is ₹16 lakh). Since ₹16 lakh exceeds ₹13 lakh, it is the carrying amount.

  1. A₹13 lakh
  2. B₹16 lakhCorrect
  3. C₹20 lakh
  4. D₹24 lakh

Explanation

Under paragraph 4.2.1(d) the commitment is carried at the higher of the loss allowance (₹13 lakh) and the amount initially recognised less cumulative income recognised (20 - 4 = ₹16 lakh). The higher is ₹16 lakh. ₹13 lakh wrongly takes the loss allowance alone, and ₹20 lakh ignores the income deduction.

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