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Practical caseIFRS 9L2 · Intermediate

Loan at the effective interest rate and debt securities: amortised cost schedule with integral fees, FVOCI with recycling and reclassification

6 documents15 tasks≈ 75 min
0 / 17 items completed
Standards
IFRS 9 — Financial Instruments
Assistance levelHelp on demand · assistance on request
  • Method: on request
  • Checklist: on request
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Lorvane Crédit SA (fictitious entity) closes its books on 31 December. In 20X6 it granted a loan to a company with an arrangement fee, it holds a zero-coupon bond in its liquidity portfolio, it decided to sell a mortgage loan portfolio and it monitors a loan whose borrower is in liquidation. You prepare the calculations and the entries.

Your assignment

Compute the net initial amount of loan L, the interest and the closing amounts of the three periods, and check them by discounting; compute the cumulative OCI of the Aldane bond; deal with loan Y; assess the reclassification of portfolio M and compute the fair value difference; record the five entries requested, present their effect on the financial statements and conclude. One document is not useful.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Intermediate level: help remains available, on demand.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 6 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 17) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

6 documents: open each one to read it.

Document 1Memo

Entity profile and case conventions

Lorvane Crédit SA (fictitious entity), a credit institution, closes its books on 31 December. Case conventions: amounts in EUR, interest rounded to the cent (half up) at each period; the effective interest rates are given by the finance department (they exactly discount the estimated cash flows); contractual cash flows are as forecast; case convention (pedagogical assumption, not attributed to IFRS 9): the fair value difference of portfolio M at the reclassification date is recognised in profit or loss; the entries are illustrative.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Principal disbursed (initial fair value) of loan L€1,000,000.00
Integral arrangement fee received€30,000.00
Direct file costs borne€2,894.58
Contractual annual coupon€42,500.00
Effective interest rate of loan L5.25%
Last contractual cash flow (principal and coupon)€1,042,500.00
Number of periods between the start of period 3 and the last cash flow1 unit
Acquisition cost (initial fair value) of the Aldane bond€800,000.00
Amount redeemed at maturity€898,880.00
Effective interest rate of the Aldane bond6%
Fair value of the bond at 31 December 20X6€866,000.00
Number of periods remaining at 31 December 20X61 unit
Carrying amount of portfolio M before reclassification€2,400,000.00
Fair value of portfolio M at 1 January 20X7€2,436,000.00
Anticipated fall in policy rates0.25%

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort6

  • Entity profile and case conventions

  • Loan L granted to Brenval

  • Aldane zero-coupon bond (FVOCI portfolio)

  • Board decision on the mortgage loan portfolio M

  • File of loan Y granted to a distributor in liquidation

  • Interest rate market commentary

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      15 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Calculation

        Compute the net initial amount of loan L (fair value, integral fee, direct costs).

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the net initial amount of loan L (fair value, integral fee, direct costs).

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      2. Task 2Calculation

        Compute the interest of each period of loan L and of the first period of the Aldane bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the interest of each period of loan L and of the first period of the Aldane bond.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Interest for 20X6 of the Aldane bond

      3. Task 3Calculation

        Compute the closing carrying amount of each period of loan L and of the Aldane bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the closing carrying amount of each period of loan L and of the Aldane bond.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Amortised cost of the Aldane bond at 31 December 20X6

      4. Task 4Calculation

        Check the closing amounts by discounting at the effective interest rate the remaining cash flow of loan L (start of period 3) and of the Aldane bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Check the closing amounts by discounting at the effective interest rate the remaining cash flow of loan L (start of period 3) and of the Aldane bond.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Present value of the redemption of the Aldane bond at 31 December 20X6

      5. Task 5Calculation

        Compute the cumulative amount in other comprehensive income of the Aldane bond at 31 December 20X6.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the cumulative amount in other comprehensive income of the Aldane bond at 31 December 20X6.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Analysis

        What should be done with loan Y in view of the liquidator's certificate?

      7. Task 7Analysis

        Is the board decision on portfolio M a change of business model giving rise to reclassification, and at which date?

      8. Task 8Calculation

        Compute the fair value difference of portfolio M at the reclassification date.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Compute the fair value difference of portfolio M at the reclassification date.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      9. Task 9Journal entries

        Record the interest of the first period of loan L.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      10. Task 10Journal entries

        Record the collection of the first coupon of loan L.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      11. Task 11Journal entries

        Record the remeasurement of the Aldane bond at 31 December 20X6.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      12. Task 12Journal entries

        Record the recycling to profit or loss of the cumulative OCI on the sale of the Aldane bond.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      13. Task 13Journal entries

        Record the reclassification of portfolio M from amortised cost to fair value through profit or loss.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        TotalsDebit0Credit0

      14. Task 14Effects on the financial statements

        What is the cumulative effect of the five entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      15. Task 15Conclusion

        Write the conclusion.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 17).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IFRS 9 §5.4.1
      • IFRS 9 §B5.4.1
      • IFRS 9
      • IFRS 9 §4.4.1
      • IFRS 9 §B4.4.1