Query
A company, say D Ltd. has adopted Ind AS voluntarily w.e.f April 1, 2015. In April, 2017, it purchased debentures of another company, E Ltd.
D Ltd. wants to know how interest on investment in debt of E Ltd. will be treated under Ind AS?
Response
The treatment of interest from investment in debt instrument depends upon the basis of subsequent measurement of investment, i.e. amortized cost, fair value through other comprehensive income or fair value through profit or loss.
(i) When the investment is measured at amortized cost, firstly interest revenue, calculated using the effective interest rate, should be added to the gross carrying amount of the investment. Subsequently, on receipt of interest from issuer of debt instrument, the amount of interest received shall be deducted from the gross carrying amount of the investment.
(ii) When the investment is measured at fair value through other comprehensive income, interest revenue from the investment should be recognized in the statement of profit & loss in accordance with paras 5.7.10 and 5.7.11 of Ind AS 109, Financial Instruments. In this case also, interest amount is calculated using effective interest rate.
(iii) When the investment is measured at fair value through profit or loss, an entity has the option either to adjust interest income with the fair value gains/losses or to recognize as income separately in accordance with para B5 (e) Ind AS 107, Financial Instruments: Disclosures.
Reference
- Issue 9 of Ind AS Transition Facilitation Group Clarification Bulletin 8
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