It is quite general practice to provide concessional loans and/ or to provide goods of an entity to its own employees. These are generally treated at their normal transaction values and no fair values comparison is being taken into account.
Now, after the introduction of Ind-As/ IFRS in India, these kind of transactions will be re-evaluated and need to be accounted differently and hence management of these entities need to re-engineer its internal structures to capture such changes and account them correctly in the books of accounts.
Employees are being compensated by giving them salary, bonus or let’s say short term benefits and post employment benefits etc. However it’s very common to provide some kind of concessions by giving loans to the employees either at below the market rates or structure the repayment of the loan in such a manner which eventually benefit to the employee overall.
After the applicability of Ind-As -109- “Financial Instruments” which talks about to do fair valuation of all the instruments at its initial recognition as per the methodology defined under Ind-As-113 – “Fair Value Measurement”, such loans given to the employees will be covered under financial instruments so let’s discuss first about the accounting treatment in the books of accounts-
Now, let’s talk about another scenario where an entity provide goods to its employee/ or former employee on some discount or free basis then the accounting implications can be summarized as below –
There would be striking change in the perspective of how employee loans will be shown in the financial statements and accordingly structuring would be done to provide such benefits.
These are based on the interpretation of relevant accounting standards and wherever there is nothing directly available from these standard, a best practices of industries has been used to explain its accounting treatments. This should not be treated any kind of advise as the situation/ results might be different once actual facts are being considered.
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