On 1 st April 2XX0, Zx Co originates a 10-year 6% ₹ 1,00,000 loan. The loan carries an annual interest rate of 6% payable at the end of each year…

The initial carrying amount of the loan asset is calculated as follows: Particulars ₹ Loan principal 1,00,000 Origination fees charged to borrower (3,000) Origination costs incurred by lender 5,000 Carrying amount of loan 1,02,000 Because the entity expects the borrower not to pre-pay, the amortisation period is equal to the instrument's full term. The carrying amount of the loan over the period to maturity, assuming that the entity continues to expect the borrower not to pre-pay, will be as follows: Opening Carrying amount a Cash in flows (coupon) b=1,00,000 x 6% Interest income@ 5.7317% c=a x 5.7317% Amortisation of net fees d=b-c Closing Carrying amount e=a-d Particulars ₹ Particulars Particulars ₹ 1 Apr 2XX0 1,02,000 31 Mar 2XX1 1,02,000 6,000 5,846 154 1,01,846 31 Mar 2XX2 1,01,846 6,000 5,838 162 1,01,684 31 Mar 2XX3 1,01,684 6,000 5,828 172 1,01,512 31 Mar 2XX4 1,01,512 6,000 5,818 182 1,01,330 31 Mar 2XX5 1,01,330 6,000 5,808 192 1,01,138 31 Mar 2XX6 1,01,138 6,000 5,797 203 1,00,935 31 Mar 2XX7 1,00,935 6,000 5,785 215 1,00,721 31 Mar 2XX8 1,00,721 6,000 5,773 227 1,00,494 31 Mar 2XX9 1,00,494 6,000 5,760 240 1,00,254 31 Mar 2X10 1,00,254 6,000 5,746 254 1,00,000 60,000 58,000 2,000 31 Mar 2X10 Repayment of principal (1,00,000) 31 Mar 2X10 Carrying value of loan Nil The effective interest income for the period is calculated by applying the effective interest rate of 5.7317% to the loan's amortised cost at the end of the previous reporting period. The annual interest income decreases each year, to reflect the decrease in the asset's carrying value as the initial net fee is amortised. So, the difference between the calculated effective income for a given reporting period and the loan's coupon is the amortisation of the transaction costs during that reporting period. The loan's amortised cost at the end of the previous period less amortisation in the current reporting period gives the loan's amortised cost at the end of the current period. By maturity date, the net fees received are fully amortised and the loan's carrying amount is equal to the face amount, which is then repaid in full.