19 May 2012
A company has taken loan from finantial Instutation but because of its poor finantial position it fails to repay the loan and interest. As per the CDR some portion of loan and interest amount has been waived off. What would be the accounting treatement of Waiver of Loan ,Interest and penal Interest.
To answer your query, the company would record gain on extinguishment of interest liability through income statement.
Similar for the portion of loan balance that is waived in CDR scheme.
Any penal interest paid can have two interpretation in the way it is documented / worded in the CDR scheme. 1. Penal interest is an expense in the income statement considering it to be exit fee;
2. if Considered similar to upfront then amortise over the new loan term.
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