prpri Accounting of Borrowings / Loans under Ind AS Accounting of Borrowings / Loans under Ind AS

Accounting of Loans under Ind AS

Two Ind AS would be referred for the accounting of loans: Ind AS 109 (Financial Instruments) and Ind AS 113 (Fair Value Measurement). As per Ind AS 109, financial instruments have to be measured at fair value at its initial recognition as per the methodology given by Ind AS 113.

Financial Instrument defined under Ind AS 32: A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Therefore, loan taken from bank is a financial instrument.

Say, ABC Ltd has taken a loan from a bank with the following terms:

Loan amount:     Rs. 2 Crores

Rate of Interest: 8% p.a.

EMI:                     Rs. 13.33 Lakhs

Processing fee:    Rs. 4 Lakhs

Under IGAAP, processing fee was debited to borrowing charges with full amount at the time of payment to bank. Under Ind AS, it has to be amortised over the period of the term loan. Practically, ABC Ltd has received Rs. 1.96 Crores (net of processing fee), so under Ind AS, Loan has taken for Rs. 1.96 Crores and interest will be calculated on Rs. 1.96 Crores. Effective Interest rate has to be identified presuming processing fee as interest expense which has to be booked as expense over the period of the term loan.

Download Excel File explaining Calculations on Accounting of Loans under Ind AS

Stepwise accounting of loan:

1. Debit the term loan account by the amount of the processing fee paid to the bank.

2. Calculate Effective interest rate considering Rs. 4 Lakhs of processing fee as interest expense which has to be amortised as interest expense over the period of the term loan.

3. Calculate actual interest as per actual interest rate i.e., 8% p.a. and interest expense to be amortised as per effective interest rate.

4. Actual interest shall be remitted to the bank as per the terms of the loan taken and the difference amount (Effective Interest – Actual interest) shall be credited to term loan account.

Difference amount pertains to the processing fee which has to be amortised monthly over the period of the term loan.

Working understanding of accounting of loan (alongwith Ind AS entries) can only be obtained through complete working of loan discounting in excel which has attached for your perusal.

For any clarification, reach me at

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  1. Girish says:

    Suppose for a facility to draw amount i have paid 2 cr upfront fee. i can draw the amount within a period of 10 years. now in that loan half of the amount will be used for repayment of existing loans after 5 years and for remaining i dont know whether i will utilise the amount or not.

    Could you tell me the accounting treatment for upfront fee under IndAS

  2. Rajkumar says:

    What will be the treatment for Hypothecation expenses incurred on property mortgaged for availing credit facility from Bank. If Hypothecation expenses will also be amortised just like processing fee or the entire amount will be expensed out as Hypothecation expenses is not recovered by the lender.

  3. Bhutesh Kumar Malviya says:


    The Excell sheet you have provided for examples, you have taken Actual Rate 105 instead of presumed rate 8%.

    That was little bit confusing.

    Would you mind please eleborate how you calculated effective rate.

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July 2021