Autumn Limited has a policy of providing subsidized loans to its employees for their personal purposes. Mrs. Jama Bai, a senior HR manager in the…

CA Final · Financial Reporting · MTP · May 2026
Autumn Limited has a policy of providing subsidized loans to its employees for their personal purposes. Mrs. Jama Bai, a senior HR manager in the Company, took a loan of 12.00 lakhs on the following terms: Interest rate 4% per annumLoan disbursement date: 1 st April, 20X1The principal amount of the loan shall be recovered in 4 equal annual installments commencing from 31 st March, 20X2The accumulated interest computed on reducing balance at simple interest is collected in 3 equal annual installments after collection of the principal amountMrs. Jama Bai must remain in service till the principal and interest are paidThe market rate of a comparable loan to Mrs. Jama Bai is 9% per annumThe present value of 1at 9% per annum at the end of respective years is as follows: Year ending 31 st March 20 X2 20 X3 20 X4 20 X5 20 X6 20 X7 20 X8 Present Value 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.5470 Under the assumption that no probable future economic benefits except the return of loan has been guaranteed by the employee, you are required to: i. Provide the journal entries at the time of initial recognition of loan on 1 st April, 20X1 and as at 31 st March, 20X2; and ii. Prepare ledger account of 'Loan to Mrs. Jama Bai' from the inception of the loan till its final payment.

Suggested Answer and Working Notes:

(i) Journal Entry Date Particulars Dr. ₹ Cr. ₹ 1/4/20X1 Loan to Mrs. Jama Bai A/c Dr. 10,43,638 Pre-paid employee cost A/c Dr. 1,56,362 To Bank A/c 12,00,000 (Being loan to employee recorded at fair value) 31/3/20X2 Loan to Mrs. Jama Bai A/c Dr. 93,927 To Finance Income A/c 93,927 (Being finance income @ 9% recorded in the books) 31/3/20X2 Bank A/c Dr. 3,00,000 To Loan to Mrs. Jama Bai A/c 3,00,000 (Being installment received at the end of the year) (ii) In the books of Autumn Ltd. Loan to Mrs. Jama Bai A/c Date Particulars Amount (₹) Date Particulars Amount (₹) 1.4.20X1 To Bank A/c 10,43,638 31.3.20X2 By Bank A/c 3,00,000 31.3.20X2 To Finance income (W.N.3) 93,927 31.3.20X2 By Balance c/d 8,37,565 11,37,565 11,37,565 1.4.20X2 To Balance b/d 8,37,565 31.3.20X3 By Bank A/c 3,00,000 31.3.20X3 To Finance income (W.N.3) 75,381 31.3.20X3 By Balance c/d 6,12,946 9,12,946 9,12,946 1.4.20X3 To Balance b/d 6,12,946 31.3.20X4 By Bank A/c 3,00,000 31.3.20X4 To Finance income (W.N.3) 55,165 31.3.20X4 By Balance c/d 3,68,111 6,68,111 6,68,111 1.4.20X4 To Balance b/d 3,68,111 31.3.20X5 By Bank A/c 3,00,000 31.3.20X5 To Finance income (W.N.3) 33,130 31.3.20X5 By Balance c/d 1,01,241 4,01,241 4,01,241 1.4.20X5 To Balance b/d 1,01,241 31.3.20X6 By Bank A/c 40,000 31.3.20X6 To Finance income (W.N.3) 9,112 31.3.20X6 By Balance c/d 70,353 1,10,353 1,10,353 1.4.20X6 To Balance b/d 70,353 31.3.20X7 By Bank A/c 40,000 31.3.20X7 To Finance income (W.N.3) 6,332 31.3.20X7 By Balance c/d 36,685 76,685 76,685 1.4.20X7 To Balance b/d 36,685 31.3.20X8 By Bank A/c 40,000 31.3.20X8 To Finance income (W.N.3) 3,315* 40,000 40,000 *Difference of 13 (₹ 3,315 - 3,302) is due to approximation. Working Notes: 1. Calculation of initial recognition amount of loan to employee Year Estimated Cash Flows ₹ PV Factor @9% Present Value ₹ 31/3/20X2 3,00,000 0.9174 2,75,220 31/3/20X3 3,00,000 0.8417 2,52,510 31/3/20X4 3,00,000 0.7722 2,31,660 31/3/20X5 3,00,000 0.7084 2,12,520 31/3/20X6 40,000 (W.N.2) 0.6499 25,996 31/3/20X7 40,000 (W.N.2) 0.5963 23,852 31/3/20X8 40,000 (W.N.2) 0.5470 21,880 Fair Value of Loan 10,43,638 2. Computation of Interest to be paid Year Opening outstanding balance ₹ Cash Flows ₹ Principal outstanding at year end ₹ Interest @ 4% on a ₹ Cumulative Interest ₹ 31/3/20X2 12,00,000 3,00,000 9,00,000 48,000 48,000 31/3/20X3 9,00,000 3,00,000 6,00,000 36,000 84,000 31/3/20X4 6,00,000 3,00,000 3,00,000 24,000 1,08,000 31/3/20X5 3,00,000 3,00,000 Nil 12,000 1,20,000 31/3/20X6 1,20,000 40,000 (1,20,000/3) 31/3/20X7 40,000 (1,20,000/3) 31/3/20X8 40,000 (1,20,000/3) 3. Computation of finance cost as per amortization table Year Opening Balance (1) ₹ Interest @ 9% (2) ₹ Repayment (3) ₹ Closing Balance (1+2-3) ₹ 1/4/20X1 10,43,638 10,43,638 31/3/20X2 10,43,638 93,927 3,00,000 8,37,565 31/3/20X3 8,37,565 75,381 3,00,000 6,12,946 31/3/20X4 6,12,946 55,165 3,00,000 3,68,111 31/3/20X5 3,68,111 33,130 3,00,000 1,01,241 31/3/20X6 1,01,241 9,112 40,000 70,353 31/3/20X7 70,353 6,332 40,000 36,685 31/3/20X8 36,685 3,315* 40,000 Nil *Difference of 13 (₹ 3,315 - 3,302) is due to approximation.

Topics: Ind AS 109, General

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