Repayment of Term Loan

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RAMSANKAR MISHRA (Querist)
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28 April 2009 If one Company has taken some amount from a Bank as Term Loan and repays certain amount as per the agreement in a particular financial year. Let's take the company has owed Rs. 50 Cr and has in the agreement to pay 5 Cr each year for 10 years (5X10 = 50 Cr.) + Interest as per the prevailing rate.

My question is that while preparing the final account on 31 of March can we show the repayment amount (Rs. 5 Cr.) for the particular year and interest amount as the expense of the particular year on Profit and debit that amount to the profit and Loss Account or is there any restriction over it ??

Is there any such other expenses of this type where treatment has some sort of ambiguity then plz make me know.

Thanks.

CA Akshat

CA Akshat (Expert)
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28 April 2009 The basics of accounting and auditing says that u have to present in final accounts whats true and fair. The actual expenses, liability,income assets are to be presented. In this case u have taken termed loan which is 5 crors which will be presented in liability. u re payed e.g. 1 crore. ur liability for term loan will be 5-1=4 crors. For interest it should be debited as per expenses as occurring basis and not on cash basis as its a corporate company.

CA CS CMA Srinivasan N

CA CS CMA Srinivasan N (Expert)
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28 April 2009 Hi Mr.Ram,

You have the answer in your query itself.

The accounting for repayment is same as u have described and there i no ambiguity in the same. However there are some types of loans such as Foreign Currency Loans and consortium loans where slight changes on Exchange rates and restatements occur.
In case u have further doubts mail me at srini.ca@gmail.com

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CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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28 April 2009 The Term Loan is a liability which shall appear on the Liabilities side in the Balance Sheet. The interest paid thereon may be written off to P&L Account while the repayment component in the EMIs paid will reduce your liability.