A Ltd has made a security deposit whose details are described below. Make necessary journal entries for accounting of the deposit in the first year…

The above security deposit is an interest free deposit redeemable at the end of lease term for 10,00,000. Hence, this involves collection of contractual cash flows and shall be accounted at amortised cost. Upon initial measurement Particulars Details Security deposit (A) 10,00,000 Present value factor of 5th year end @ 12% 0.56743 Present value of deposit at beginning (B) 5,67,427 Prepaid lease payment at beginning (A-B) 4,32,573 Journal Entries Year – 1 beginning Particulars Amount Amount Security deposit A/c Dr. 5,67,427 Right-of-Use Asset Dr. 4,32,573 To Bank A/c 10,00,000 Subsequently, every annual reporting year, interest income shall be accrued @ 12% per annum and prepaid expenses shall be amortised on straight line basis over the lease term. Year 1 end Particulars Amount Amount Security deposit A/c (5,67,427 x 12%) Dr. 68,091 To Interest income A/c 68,091 At the end of 5th year, the security deposit shall accrue - 10,00,000 and prepaid lease expenses shall be fully amortised (i.e. depreciated as per Ind AS 116, this prepaid lease rent would be shown as ROU asset). Journal entry for realisation of security deposit - Particulars Amount Amount Security deposit A/c Dr. 1,07,143 To Interest income A/c 1,07,143 Bank A/c Dr. 10,00,000 To Security deposit A/c 10,00,000