Amortised Cost Method - Ind AS - Indian Accounting Standards - Companies Law

Amortised Cost Method Entity shall initially recognise Financial Assets or Financial Liabilities at fair value adjusted with transaction cost. If transaction is on the basis of the Market Terms that means Effective Interest Rate is available, then Amount received or given of Financial Instrument is considered at Fair Value. If transaction is on the basis of the Off Market Terms that means market rate on similar instrument has to consider then Fair Value to be calculated by discounting future cash flows using market interest rate. At Each reporting date, financial instrument has to measure at amortised cost, and so using the effective interest rate method, is held at: the amount at which the instrument was initially recognised; MINUS any repayments of principal; PLUS or MINUS cumulative amortisation, using the effective interest method, of the difference between the initial recognition amount and the maturity amount, and any fees or transaction costs; MINUS (for a financial asset) any provision for impairment. Journal Entries- For Financial Asset For Financial Liability 1. At Beginning 1. At Beginning Financial Asset Dr. XXX Bank A/c Dr. XXX To Bank XXX To Financial Liability XXX 2. At Each Year end 2. At Each Year End Financial Asset A/c Dr. XXX Finance Cost (P L) XXX To Finance Income (P L) XXX To Financial Liability XXX (For unwinding of discount) (For unwinding of discount) Bank A/c Dr. XXX Finance Liability XXX To Financial Asset XXX To Bank XXX [For Actual Interest or Principal installment revised (if any)] [For Actual interest or principal installment paid (if any)] Note:- Effective Interest Rate is the rate of which present value of future cash flows from the instrument becomes equal to the net cash flow at the beginning. Transaction Cost to be include regulatory fees, Charges for document preparation Processing, Brokers Fees, Upfront Fees etc. It is to be added to Fair Value of financial asset at initial recognition. It is Subtracted from fair value of financial liability of initial recognition. If transaction is done at Off Market terms, then their will be difference between amount received or paid at beginning Fair value calculated at beginning, then such difference to be recorded.