demand’, Management is required to assess the risk For example, if Management expected that the risk of a default occurring at initial recognition and at the of default would be very high for the first number reporting date assuming that repayment is demanded of years, then the fact that the risk of default is immediately (irrespective of whether this is the close to 100% at the first reporting da. [...] Parent Parent A advances an unsecured loan for £1m to A notes the following: Subsidiary B on 1 January 20x0 with the following • the contractual terms of the loan specify a fixed terms: repayment amount of £1m which is equal to the • 0% interest (assume that a market rate of interest principal (being the initial fair value of the loan for a similar loan is estimated at 7%) of £713k) and interest (. [...] irrespective of whether the loan from Parent A is repayable on demand or repayable in five years; In all of the above scenarios, Parent A is likely to conclude that both the demand loan and the term loan • SICR: a breach of covenant or late payment under are basic lending arrangements that meet the SPPI the bank loan may be indicators of a SICR on the test and would therefore be classified at amor. [...] Classification • while the loan advanced by Parent C provided As the loan is in a ‘hold to collect’ business model, the financing for 100% of the cost of the land, the total key classification question is whether the loan meets loan (i.e. [...] • the contractual terms of the loan specifies a fixed Based on the above, Parent A concludes that the repayment of £200k which is equal to the principal loan to Subsidiary B is a basic lending arrangement (being the fair value at initial recognition) and that meets the SPPI test and would be classified interest of £42k (being 10% interest compounded at amortised cost because it is in a hold to col.

- Pages
- 24

- Published in
- Australia

## Table of Contents

- Table of contents 2
- 1. INTRODUCTION 3
- Section 1 - Investment property group 4
- Example 1.1 – Interest-free demand loan - no bank debt 5
- Example 1.2 – Interest-free term loan - no bank debt 9
- Example 1.3 – Interest free demand or term loan - senior bank term debt 12
- Example 1.4 - Refinancing of bank debt 14
- Example 1.5 - Profit Participating Loan 16
- Section 2 – Property Development group 17
- Example 2.1 – Interest bearing term loan - senior interest bearing bank term debt 18
- Appendix A – IFRS 9: Key requirements 21