Concessional Loans (below market rates) or discounted items sold to employees- Ind-As

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-

1-  If the repayment of the loan which is to be recovered from the employee is not as we usually take from the banks (i.e. principal and interest will be repaid gradually and equal monthly installment are being fixed) then entity need to make a working as per the normal EMI method and compare it with the structure ...........For further read please refer http://gyanifrs.com/2017/02/concessional-loans-below-market-rates-or-discounted-items-sold-to-employees-ind-as-ifrs/