On 1st April, 2023, Mera Limited raised a term loan of 5,00,00,000 from Tera Finance Limited, a Non-Banking Finance Company on the following terms…

(a) On the date of initial recognition, the effective interest rate of the loan shall be computed keeping in view the contractual cash flows and upfront processing fee paid. The following table shows the amortisation of loan based on effective interest rate: Date Opening Balance (a) Cash outflows (principal) (b) Cash outflows (interest and fee) (c) = [(5,00,00,000 - instalments paid till previous year) x 11%] Interest [EIR @ 11.50%] (d) = [a x 11.50%] Closing Balance (amortised cost) (e) = (a) – (b) - (c) + (d) 1-Apr-2023 (5,00,00,000) 5,90,000 4,94,10,000 31-Mar-2024 4,94,10,000 1,00,00,000 55,00,000 56,82,150 3,95,92,150 31-Mar-2025 3,95,92,150 1,00,00,000 44,00,000 45,53,097 2,97,45,247 31-Mar-2026 2,97,45,247 1,00,00,000 33,00,000 34,20,703 1,98,65,950 31-Mar-2027 1,98,65,950 1,00,00,000 22,00,000 22,84,584 99,50,534 31-Mar-2028 99,50,534 1,00,00,000 11,00,000 11,49,466* (0) *Difference of 5,155 (11,49,466 – 11,44,311) is due to rounding off. Journal Entries in the books of Mera Limited 1 st April, 2023 Particulars ₹ ₹ Bank A/c Dr. 4,94,10,000 To Loan from Tera Finance Limited A/c (Being loan recorded at its fair value less transaction costs on the initial recognition date) 4,94,10,000 31 st March, 2024 Particulars ₹ ₹ Loan from Tera Finance Limited A/c Dr. 98,17,850 Interest expense (profit and loss) Dr. 56,82,150 To Bank A/c (1,00,00,000 + 55,00,000) (Being first instalment of loan and payment of interest accounted for as an adjustment to the amortised cost of loan) 1,55,00,000 31 st March, 2025 – Before Mera Limited approached the bank Particulars ₹ ₹ Interest expense (profit and loss) Dr. 45,53,097 To Loan from Tera Finance Limited A/c 1,53,097 To Bank A/c (Being loan payment of interest recorded by the Company before it approached the Bank for deferment of principal) 44,00,000 Upon receiving the new terms of the loan, Mera Limited, re-computed the carrying value of the loan by discounting the new cash flows with the original effective interest rate and comparing the same with the current carrying value of the loan. As per requirements of Ind AS 109, any change of more than 10% shall be considered a substantial modification, resulting in fresh accounting for the new loan: Date Cash flows (principal) (a) Interest outflow @15% (b) Discount factor @ 11.50% (c) PV of cash flows (a + b) x c 31-Mar-2025 (4,00,00,000) 31-Mar-2026 50,00,000 60,00,000 0.897 98,67,000 31-Mar-2027 50,00,000 52,50,000 0.804 82,41,000 31-Mar-2028 50,00,000 45,00,000 0.721 68,49,500 31-Mar-2029 50,00,000 37,50,000 0.647 56,61,250 31-Mar-2030 50,00,000 30,00,000 0.580 46,40,000 31-Mar-2031 50,00,000 22,50,000 0.520 37,70,000 31-Mar-2032 50,00,000 15,00,000 0.467 30,35,500 31-Mar-2033 50,00,000 7,50,000 0.419 24,09,250 PV of new contractual cash flows discounted at 11.50% 4,44,73,500 Carrying amount of loan (3,95,92,150 +1,53,097) 3,97,45,247 Difference 47,28,253 Percentage of difference to carrying amount 11.90% Considering a more than 10% change in PV of cash flows compared to the carrying value of the loan, the existing loan shall be considered to have been extinguished and the new loan shall be accounted for as a separate financial liability. The accounting entries for the same are included below: b. 31st March, 2025 – Accounting for Extinguishment Particulars ₹ Loan from Tera Finance Limited (old) A/c Dr. 3,97,45,247 Loss on modification of loan (profit and loss) Dr. 2,54,753 To Loan from Tera Finance Limited (new) A/c (Being new loan accounted for at its principal amount by correspondingly derecognising the existing loan) 4,00,00,000 31 March, 2026 Particulars ₹ ₹ Loan from Tera Finance Limited A/c Dr. 50,00,000 Interest expense (profit and loss) Dr. 60,00,000 To Bank A/c (Being first instalment of the principal of new loan and payment of interest accounted) 1,10,00,000