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Basic understanding of amortising upfront fees by factoring the same into interest expense by EIR method using Goal seek formula.
1. Entity has taken loan from bank on which it has incurred transaction costs primarily in form of upfront processing fees. Further these loans have multiple changes in interest rate (as contemplated in the contract based on changes in market interest rate).
2. The loans are carried at their notional amount and the transaction costs paid are expensed off in the P&L when paid under IGAAP
3. Under Ind AS all such financial liabilities are carried at amortized cost using effective interest method. Transaction cost are netted off in borrowings upon initial recognition.
4. The transaction costs have been deducted from the loan balance (when paid) and the interest has been recalculated on the effective Interest rate. Such calculation is done based on the EIR method using the goal seek function.(IND AS 109).
Comparative Computation of Interest cost under IGAAP and IND AS
Interest cost under IGAAP
| IGAAP | |||||
| Loan Amount | ₹ 7000000.00 | ||||
| Loan Tenure (in months) | 18 | ||||
| EMI | ₹ -435000.00 | ||||
| Processing Fees | ₹ 40000.00 | ||||
| Start Date | 01-04-2017 | ||||
| Interest Rate (Contracted) | 14.49% | ||||
| Interest Cost | ₹ 829999.99 | ||||
| Month | O/S-Opening | EMI | Principal | Interest | O/S-Closing |
| 01-04-2017 | 7000000.00 | 7000000.00 | |||
| 01-05-2017 | 7000000.00 | 435000.00 | 350502.00 | 84498.00 | 6649498.00 |
| 01-06-2017 | 6649498.00 | 435000.00 | 354732.96 | 80267.04 | 6294765.03 |
| 01-07-2017 | 6294765.03 | 435000.00 | 359014.99 | 75985.01 | 5935750.04 |
| 01-08-2017 | 5935750.04 | 435000.00 | 363348.72 | 71651.28 | 5572401.32 |
| 01-09-2017 | 5572401.32 | 435000.00 | 367734.75 | 67265.25 | 5204666.57 |
| 01-10-2017 | 5204666.57 | 435000.00 | 372173.73 | 62826.27 | 4832492.85 |
| 01-11-2017 | 4832492.85 | 435000.00 | 376666.29 | 58333.71 | 4455826.55 |
| 01-12-2017 | 4455826.55 | 435000.00 | 381213.08 | 53786.92 | 4074613.47 |
| 01-01-2018 | 4074613.47 | 435000.00 | 385814.76 | 49185.24 | 3688798.71 |
| 01-02-2018 | 3688798.71 | 435000.00 | 390471.99 | 44528.01 | 3298326.73 |
| 01-03-2018 | 3298326.73 | 435000.00 | 395185.43 | 39814.57 | 2903141.30 |
| 01-04-2018 | 2903141.30 | 435000.00 | 399955.77 | 35044.23 | 2503185.53 |
| 01-05-2018 | 2503185.53 | 435000.00 | 404783.69 | 30216.31 | 2098401.84 |
| 01-06-2018 | 2098401.84 | 435000.00 | 409669.89 | 25330.11 | 1688731.95 |
| 01-07-2018 | 1688731.95 | 435000.00 | 414615.08 | 20384.92 | 1274116.87 |
| 01-08-2018 | 1274116.87 | 435000.00 | 419619.95 | 15380.05 | 854496.92 |
| 01-09-2018 | 854496.92 | 435000.00 | 424685.25 | 10314.75 | 429811.67 |
| 01-10-2018 | 429811.67 | 435000.00 | 429811.68 | 5188.32 | -0.01 |
| 7000000.01 | 829999.99 | ||||
Interest cost under IND AS
| IND AS | |||||
| Loan Amount as considered for EIR | ₹ 6960000.00 | (Net off Processing Fees) | |||
| Loan Tenure(in months) | 18 | ||||
| EMI | ₹ -435000.00 | ||||
| Processing Fees | ₹ 40000.00 | ||||
| Start Date | 01-04-2017 | ||||
| Interest Rate (EIR) | 15.24% | (Using Goal Seek formula) | |||
| Interest Cost | ₹ 869999.98 | ||||
| Month | O/S-Opening | EMI | Principal | Interest | O/S-Closing |
| 01-04-2017 | 6960000.00 | 6960000.00 | |||
| 01-05-2017 | 6960000.00 | 435000.00 | 346580.87 | 88419.13 | 6613419.13 |
| 01-06-2017 | 6613419.13 | 435000.00 | 350983.80 | 84016.20 | 6262435.32 |
| 01-07-2017 | 6262435.32 | 435000.00 | 355442.66 | 79557.34 | 5906992.66 |
| 01-08-2017 | 5906992.66 | 435000.00 | 359958.17 | 75041.83 | 5547034.49 |
| 01-09-2017 | 5547034.49 | 435000.00 | 364531.04 | 70468.96 | 5182503.45 |
| 01-10-2017 | 5182503.45 | 435000.00 | 369162.01 | 65837.99 | 4813341.44 |
| 01-11-2017 | 4813341.44 | 435000.00 | 373851.80 | 61148.20 | 4439489.64 |
| 01-12-2017 | 4439489.64 | 435000.00 | 378601.18 | 56398.82 | 4060888.46 |
| 01-01-2018 | 4060888.46 | 435000.00 | 383410.89 | 51589.11 | 3677477.57 |
| 01-02-2018 | 3677477.57 | 435000.00 | 388281.70 | 46718.30 | 3289195.87 |
| 01-03-2018 | 3289195.87 | 435000.00 | 393214.39 | 41785.61 | 2895981.47 |
| 01-04-2018 | 2895981.47 | 435000.00 | 398209.75 | 36790.25 | 2497771.72 |
| 01-05-2018 | 2497771.72 | 435000.00 | 403268.56 | 31731.44 | 2094503.16 |
| 01-06-2018 | 2094503.16 | 435000.00 | 408391.65 | 26608.35 | 1686111.51 |
| 01-07-2018 | 1686111.51 | 435000.00 | 413579.81 | 21420.19 | 1272531.70 |
| 01-08-2018 | 1272531.70 | 435000.00 | 418833.89 | 16166.11 | 853697.81 |
| 01-09-2018 | 853697.81 | 435000.00 | 424154.71 | 10845.29 | 429543.10 |
| 01-10-2018 | 429543.10 | 435000.00 | 429543.13 | 5456.87 | -0.02 |
| 6960000.02 | 869999.98 | ||||
Accounting Entries Under IGAAP and IND AS
Accounting Entries Under IGAAP
| IGAAP | |||||
| Accounting Head | Dr | Cr | Category | Remarks | |
| Bank Account | ₹ 6960000.00 | BS | Month 1 | ||
| Loan | ₹ 7000000.00 | BS | |||
| Processing Fees | ₹ 40000.00 | PL | |||
| Interest | 829999.99 | PL | Month 1 to 18 cumulative | ||
| Bank Account | 829999.99 | BS | |||
| Loan | 7000000.01 | BS | Month 1 to 18 cumulative | ||
| Bank Account | 7000000.01 | BS | |||
Accounting Entries Under IND AS
| IND AS | |||||
| Accounting Head | Dr | Cr | Category | Remarks | |
| Bank Account | ₹ 6960000.00 | BS | Month 1 | ||
| Loan | ₹ 6960000.00 | BS | |||
| Processing Fees | ₹ – | PL | |||
| Interest | 869999.98 | PL | Month 1 to 18 cumulative | ||
| Bank Account | 869999.98 | BS | |||
| Loan | 6960000.02 | BS | Month 1 to 18 cumulative | ||
| Bank Account | 6960000.02 | BS | |||
Download above in Excel Format
IND AS 109- Amortization of Processing Fees
IND AS 109 requires amortization of processing fees charged on the loan using effective interest rate method.
One may use weighted average principal outstanding to amortize the processing fees over the loan tenure.
Such amortization depends upon interest rate and tenure of the loan and will be in line with the interest income/expense.
| Loan Amount (Rs) | 100000
|
|||||
| Interest Rate (p.a) | 18% | |||||
| Tenure of Loan(months) | 75 | |||||
| Op. Book | EMI | Interest | Principal | Cl. Book | Principal Based Amortization | |
| 1 | 100,000.00 | 2,230.07 | 1,500.00 | 730.07 | 99,269.93 | 2.26% |
| 2 | 99,269.93 | 2,230.07 | 1,489.05 | 741.02 | 98,528.90 | 2.25% |
| 3 | 98,528.90 | 2,230.07 | 1,477.93 | 752.14 | 97,776.77 | 2.23% |
| 4 | 97,776.77 | 2,230.07 | 1,466.65 | 763.42 | 97,013.35 | 2.21% |
| 5 | 97,013.35 | 2,230.07 | 1,455.20 | 774.87 | 96,238.47 | 2.20% |
| 6 | 96,238.47 | 2,230.07 | 1,443.58 | 786.49 | 95,451.98 | 2.18% |
| 7 | 95,451.98 | 2,230.07 | 1,431.78 | 798.29 | 94,653.69 | 2.16% |
| 8 | 94,653.69 | 2,230.07 | 1,419.81 | 810.27 | 93,843.42 | 2.14% |
| 9 | 93,843.42 | 2,230.07 | 1,407.65 | 822.42 | 93,021.00 | 2.12% |
| 10 | 93,021.00 | 2,230.07 | 1,395.31 | 834.76 | 92,186.24 | 2.10% |
| 11 | 92,186.24 | 2,230.07 | 1,382.79 | 847.28 | 91,338.96 | 2.08% |
| 12 | 91,338.96 | 2,230.07 | 1,370.08 | 859.99 | 90,478.98 | 2.06% |
| 13 | 90,478.98 | 2,230.07 | 1,357.18 | 872.89 | 89,606.09 | 2.04% |
| 14 | 89,606.09 | 2,230.07 | 1,344.09 | 885.98 | 88,720.11 | 2.02% |
| 15 | 88,720.11 | 2,230.07 | 1,330.80 | 899.27 | 87,820.84 | 2.00% |
| 16 | 87,820.84 | 2,230.07 | 1,317.31 | 912.76 | 86,908.08 | 1.98% |
| 17 | 86,908.08 | 2,230.07 | 1,303.62 | 926.45 | 85,981.63 | 1.96% |
| 18 | 85,981.63 | 2,230.07 | 1,289.72 | 940.35 | 85,041.28 | 1.94% |
| 19 | 85,041.28 | 2,230.07 | 1,275.62 | 954.45 | 84,086.83 | 1.92% |
| 20 | 84,086.83 | 2,230.07 | 1,261.30 | 968.77 | 83,118.06 | 1.90% |
| 21 | 83,118.06 | 2,230.07 | 1,246.77 | 983.30 | 82,134.76 | 1.87% |
| 22 | 82,134.76 | 2,230.07 | 1,232.02 | 998.05 | 81,136.70 | 1.85% |
| 23 | 81,136.70 | 2,230.07 | 1,217.05 | 1,013.02 | 80,123.68 | 1.83% |
| 24 | 80,123.68 | 2,230.07 | 1,201.86 | 1,028.22 | 79,095.47 | 1.80% |
| 25 | 79,095.47 | 2,230.07 | 1,186.43 | 1,043.64 | 78,051.83 | 1.78% |
| 26 | 78,051.83 | 2,230.07 | 1,170.78 | 1,059.29 | 76,992.53 | 1.76% |
| 27 | 76,992.53 | 2,230.07 | 1,154.89 | 1,075.18 | 75,917.35 | 1.73% |
| 28 | 75,917.35 | 2,230.07 | 1,138.76 | 1,091.31 | 74,826.04 | 1.71% |
| 29 | 74,826.04 | 2,230.07 | 1,122.39 | 1,107.68 | 73,718.35 | 1.68% |
| 30 | 73,718.35 | 2,230.07 | 1,105.78 | 1,124.30 | 72,594.06 | 1.66% |
| 31 | 72,594.06 | 2,230.07 | 1,088.91 | 1,141.16 | 71,452.90 | 1.63% |
| 32 | 71,452.90 | 2,230.07 | 1,071.79 | 1,158.28 | 70,294.62 | 1.60% |
| 33 | 70,294.62 | 2,230.07 | 1,054.42 | 1,175.65 | 69,118.96 | 1.58% |
| 34 | 69,118.96 | 2,230.07 | 1,036.78 | 1,193.29 | 67,925.68 | 1.55% |
| 35 | 67,925.68 | 2,230.07 | 1,018.89 | 1,211.19 | 66,714.49 | 1.52% |
| 36 | 66,714.49 | 2,230.07 | 1,000.72 | 1,229.35 | 65,485.14 | 1.49% |
| 37 | 65,485.14 | 2,230.07 | 982.28 | 1,247.80 | 64,237.34 | 1.47% |
| 38 | 64,237.34 | 2,230.07 | 963.56 | 1,266.51 | 62,970.83 | 1.44% |
| 39 | 62,970.83 | 2,230.07 | 944.56 | 1,285.51 | 61,685.32 | 1.41% |
| 40 | 61,685.32 | 2,230.07 | 925.28 | 1,304.79 | 60,380.53 | 1.38% |
| 41 | 60,380.53 | 2,230.07 | 905.71 | 1,324.36 | 59,056.16 | 1.35% |
| 42 | 59,056.16 | 2,230.07 | 885.84 | 1,344.23 | 57,711.93 | 1.32% |
| 43 | 57,711.93 | 2,230.07 | 865.68 | 1,364.39 | 56,347.54 | 1.29% |
| 44 | 56,347.54 | 2,230.07 | 845.21 | 1,384.86 | 54,962.68 | 1.25% |
| 45 | 54,962.68 | 2,230.07 | 824.44 | 1,405.63 | 53,557.05 | 1.22% |
| 46 | 53,557.05 | 2,230.07 | 803.36 | 1,426.72 | 52,130.33 | 1.19% |
| 47 | 52,130.33 | 2,230.07 | 781.95 | 1,448.12 | 50,682.22 | 1.16% |
| 48 | 50,682.22 | 2,230.07 | 760.23 | 1,469.84 | 49,212.38 | 1.12% |
| 49 | 49,212.38 | 2,230.07 | 738.19 | 1,491.89 | 47,720.49 | 1.09% |
| 50 | 47,720.49 | 2,230.07 | 715.81 | 1,514.26 | 46,206.23 | 1.05% |
| 51 | 46,206.23 | 2,230.07 | 693.09 | 1,536.98 | 44,669.25 | 1.02% |
| 52 | 44,669.25 | 2,230.07 | 670.04 | 1,560.03 | 43,109.21 | 0.98% |
| 53 | 43,109.21 | 2,230.07 | 646.64 | 1,583.43 | 41,525.78 | 0.95% |
| 54 | 41,525.78 | 2,230.07 | 622.89 | 1,607.19 | 39,918.59 | 0.91% |
| 55 | 39,918.59 | 2,230.07 | 598.78 | 1,631.29 | 38,287.30 | 0.87% |
| 56 | 38,287.30 | 2,230.07 | 574.31 | 1,655.76 | 36,631.54 | 0.84% |
| 57 | 36,631.54 | 2,230.07 | 549.47 | 1,680.60 | 34,950.94 | 0.80% |
| 58 | 34,950.94 | 2,230.07 | 524.26 | 1,705.81 | 33,245.13 | 0.76% |
| 59 | 33,245.13 | 2,230.07 | 498.68 | 1,731.40 | 31,513.74 | 0.72% |
| 60 | 31,513.74 | 2,230.07 | 472.71 | 1,757.37 | 29,756.37 | 0.68% |
| 61 | 29,756.37 | 2,230.07 | 446.35 | 1,783.73 | 27,972.64 | 0.64% |
| 62 | 27,972.64 | 2,230.07 | 419.59 | 1,810.48 | 26,162.16 | 0.60% |
| 63 | 26,162.16 | 2,230.07 | 392.43 | 1,837.64 | 24,324.52 | 0.55% |
| 64 | 24,324.52 | 2,230.07 | 364.87 | 1,865.20 | 22,459.32 | 0.51% |
| 65 | 22,459.32 | 2,230.07 | 336.89 | 1,893.18 | 20,566.14 | 0.47% |
| 66 | 20,566.14 | 2,230.07 | 308.49 | 1,921.58 | 18,644.56 | 0.43% |
| 67 | 18,644.56 | 2,230.07 | 279.67 | 1,950.40 | 16,694.15 | 0.38% |
| 68 | 16,694.15 | 2,230.07 | 250.41 | 1,979.66 | 14,714.49 | 0.34% |
| 69 | 14,714.49 | 2,230.07 | 220.72 | 2,009.35 | 12,705.14 | 0.29% |
| 70 | 12,705.14 | 2,230.07 | 190.58 | 2,039.49 | 10,665.64 | 0.24% |
| 71 | 10,665.64 | 2,230.07 | 159.98 | 2,070.09 | 8,595.56 | 0.20% |
| 72 | 8,595.56 | 2,230.07 | 128.93 | 2,101.14 | 6,494.42 | 0.15% |
| 73 | 6,494.42 | 2,230.07 | 97.42 | 2,132.66 | 4,361.76 | 0.10% |
| 74 | 4,361.76 | 2,230.07 | 65.43 | 2,164.65 | 2,197.12 | 0.05% |
| 75 | 2,197.12 | 2,230.07 | 32.96 | 2,197.12 | 0.00 | 0.00% |
| 4,383,693.63 | ||||||
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Author Bio
Hi, Thanks for giving the concept clarity. Can you share the excel templet to work out EIR by using Goal Seek command.
Kindly share the excel template
Hi, im late into the game… Great workings there, can you help on sending the excel template for amortising borrowing fees on EIR method? Many thanks
Please provide a practical scenario where I have floating rate and initial fees also so what could be treatment on EIR when my rate change due to floating
Hi.. Thanks for explaining the concept clearly.
I have a issue my principal payments are fixed but Company is not paying they pay as per funds available and so there is penalty also. Interest paid monthly principal paid quarterly
Loan was taken in March 2016.
ind as applicable April 19
can you please help
How to compute EIR, am not talking about excel goal seek formula. How to do the calculation manually?
Thanks for making it easy.
Well explained.
what if the repayment of principal is not fixed and that is done in an increasing trend. this will affect the EIR and the transaction cost needs to be debited to pl is a mess. can you help in solving this issue?