Amortising Loan IFRS 9 - uneven cash flows

Need double entry for irregular cash flows - partial refunds / prepayments

Didn't find your answer?

Hi, 

I'm aware that for IFRS 9 that when there are uneven cash flows that are included in the contract and are not due to a change in itnerest, the gross amount is discounted at the same effective interest rate. However I am having trouble in practice putting this in. 

 

If someone could provide double entry for a prepayment and separately for a refund for an amortising loan then that would be amazing. 

 

For context this is for a BNPL loan 

Replies (10)

Please login or register to join the discussion.

avatar
By paul.benny
14th Nov 2022 10:22

Maybe you could provide a bit more information - such as some actual numbers to explain the question.

And is this from the perspective of the borrower or the lender?

Thanks (0)
Replying to paul.benny:
avatar
By json2journals
14th Nov 2022 11:02

Sure thing.

This is from the position of athelender.

Let's say a consumer buys a product for £1,200 from a Merchant, and agrees to pay £100 for 12 months, with the first payment taken up front as a deposit.

We buy that set of cashflows from the merchant at a discount of £100, so the merchant receives £1,100.

Should they pay the normal contractual cashflows the double entry is simple, as per IFRS9 this pass the SPPI test so is carried at amortised cost, the cash flows are even so an implicit interest rate is calculated and applied to each payment (excluding the deposit as that is paid at t0).

However the consumer could get a partial refund say £500 half way through the contract (let's say it's a faulty product and it's agreed with the merchant).

alternatively the consumer could make a prepayment in month 4 of £200 because they had extra cash that month.

Both of these actions are perfectly fine in terms of the original contact, between us (the lender) and the consumer.

I am looking to work out the double entry in these scenarios as it looks like it could be In line with the contract and is a modification of cashflows so may need to carry out the 10% test. the either discount the change in gross value and recognise in the P&L, or derecognise the asset and recognise a new one.

However I am a bit unsure.

Thanks (0)
avatar
By paul.benny
14th Nov 2022 12:24

Are you lending to customer or retailer?

On the one hand you've said that you buy the cashflows from the retailer. But later on you talk about the contract between you (as lender) and customer. I think you perhaps need to understand in a bit more detail the contractual arrangement and what happens in the case of early repayment and refunds, as well as default and delay.

I'd be going to your audit firm and seeking advice. Do they have other clients that are consumer lenders? How do they account for debt portfolios?

Thanks (0)
Replying to paul.benny:
avatar
By json2journals
14th Nov 2022 12:32

yes is it just seniority funding where we collect the cashflows.

We are lending to the customer as they are paying the cashflows, we have effectively purchased the debt from the retailer with all the same terms and conditions.

we are unaudited at present, which is why I asked on here.

Thanks (0)
avatar
By paul.benny
14th Nov 2022 13:42

IFRS9 is very technical and so much depends on the detailed facts, which is why I've pushed you to clarify the exact arrangements. If I were attempt to advise, it would be on a chargeable basis (and I'm not offering)

A last thought though - have you considered whether you might be able to use the IFRS for SMEs. I think this doesn't require application of IFRS9.

Thanks (0)
avatar
By Paul Crowley
07th Apr 2024 20:40

trending now

Thanks (1)
Replying to Paul Crowley:
avatar
By FactChecker
07th Apr 2024 21:05

Maybe Sift have invested in the Rocky Horror Picture Show - Let's do the timewarp?

It's like walking down the street and, after turning the corner, finding a bunch of people who've never heard of Covid or Brexit.

WHY?

Thanks (2)
Replying to FactChecker:
avatar
By Tax Dragon
08th Apr 2024 06:08

Nevermind that. I have received notification of your and Paul's invaluable updates.

I was following this thread.

WHY?

Thanks (1)
Replying to Tax Dragon:
avatar
By Paul Crowley
08th Apr 2024 08:52

https://www.accountingweb.co.uk/any-answers/self-assessment-declaring-pe...
Trending puts up some very odd results, both articles and any answers

Thanks (1)
Replying to Tax Dragon:
avatar
By FactChecker
08th Apr 2024 13:27

You mean IFRS 9 isn't top of your holiday reading list ... I'm amazed!

Are you sure it was the *thread* you were 'following'?
I've not tried that facility 'cos it sounds like what a stalker would do if applied to people ... :=)

Thanks (2)