24 June 2021
Under One Time Settlement Scheme, Bank has waived 20% of Total Loan Facility provided to a Company. How this has to be Accounted in the Books of the Company and reported in financial statements and which is the applicable accounting standard.
06 July 2024
The waiver of 20% of the total loan facility under a One Time Settlement (OTS) Scheme by the bank needs to be accounted for correctly in the books of the company. Here’s how you can account for it:
1. **Accounting Treatment**: - **Recognition of Waiver**: The amount waived by the bank (20% of the total loan facility) should be recognized as income in the books of the company at the time the OTS Scheme is accepted and the waiver is approved by the bank. - **Debit/Credit Entries**: - Debit: Bank Loan (to reduce the liability corresponding to the amount waived) - Credit: Other Income (to reflect the income from the waiver)
2. **Reporting in Financial Statements**: - **Income Statement**: The income from the waiver should be included under "Other Income" in the income statement for the period in which the OTS Scheme is finalized and the waiver is recognized. - **Balance Sheet**: The bank loan liability should be reduced by the amount waived, reflecting the revised outstanding loan balance after the OTS Scheme.
3. **Accounting Standard**: - The applicable accounting standard for recognizing income from the waiver of liabilities is typically covered under **Ind AS 12 - Income Taxes** or **Ind AS 109 - Financial Instruments** depending on the nature of the loan and the company's accounting policies.
4. **Disclosure**: - Ensure proper disclosure in the notes to the financial statements about the nature and impact of the OTS Scheme, including the amount of loan waived and its effect on the financial position and performance of the company.
**Example Entry:** Suppose the total loan facility before waiver was Rs. 1,00,00,000 and the bank waived 20% (Rs. 20,00,000).
- **Journal Entry**: - Debit: Bank Loan Account - Rs. 20,00,000 - Credit: Other Income Account - Rs. 20,00,000
This entry reduces the liability on the balance sheet and recognizes the income in the income statement.
It's crucial to ensure that the company complies with all applicable accounting standards and regulatory requirements while accounting for such waivers. Consulting with a qualified accountant or financial advisor can provide tailored guidance based on your specific circumstances and jurisdiction.
CAclubindia
