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).
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
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
|
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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 |
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
As we are using principal outstanding as weights, principal shall be reduced by the repayment as and when loan is repaid.
Let me explain more clearly, repayments till date will be actual repayments and future repayments will be fixed in proportion to the agreement so that principal o/s becomes zero at the end of tenure.
How to compute EIR, am not talking about excel goal seek formula. How to do the calculation manually?
Will send you the excel sheet if you want
Please send the excel sheet.
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?
Even I have the same issue. If the principal payments are not fixed and loan has been disbursed in different tranches with different tranche maturity, what would be the treatment?
Weighted average principal can be used to amortise the processing fees.
principal outstanding as on each period can be changed in case of any uneven payments.
Can send you an excel template if you want
Weighted average principal can be used to amortise the processing fees.
principal outstanding as on each period can be changed in case of any uneven payments.
Can send you an excel template if you want