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CMA Final · Corporate Financial Reporting · NBFCs - Provisioning Norms, Accounting and Reporting

Under Ind AS, Gandak Finance, an NBFC, has a credit-impaired (Stage 3) loan with gross carrying amount ₹1,00,00,000 and ECL allowance ₹20,00,000. The effective interest rate is 12% per annum. How much interest income should be recognised for the year on this loan?

Interest income is ₹9,60,000. For a credit-impaired Stage 3 loan, Ind AS 109 applies the effective interest rate to the net carrying amount, being ₹1 crore less the ₹20 lakh allowance, so 12% of ₹80,00,000 is recognised, not interest on the gross amount.

  1. A₹9,60,000Correct
  2. B₹12,00,000
  3. C₹2,40,000
  4. DNil

Explanation

For Stage 3 assets, Ind AS 109 requires interest revenue on the amortised cost, i.e. the net carrying amount after the allowance. Net = ₹1,00,00,000 − ₹20,00,000 = ₹80,00,000, and 12% of it is ₹9,60,000. Applying the rate to the gross amount (₹12,00,000) is the Stage 1 and 2 method.

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