I am preparing some SPV accounts for a property development client of ours.
They took a short term development loan, which is drawn down on request. Under FRS 102 we have chosen to adopt section 11 and 12 in respect of accounting policy for financial instruments.
At the year end (31/03/2019) the full facility was not drawn, this means that future cashflows are unknown but capped at the facility amount.
My question is, what would you consider the correct accounting treatment to be? The amortisation method, using the effective rate of interest can only work if future cashflows are known. In this case, they are not.
Your comments will be very much appreciated.