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Under Ind AS 109, an inter-company loan from a PARENT to its SUBSIDIARY for ₹10 lakh, interest-free, repayable after 3 years (market rate for similar loan = 10%). On initial recognition in the parent's separate FS:
ARecognise loan receivable at face value of ₹10 lakh — inter-company loans use cost
BRecognise loan receivable at present value of ₹7.51 lakh; defer differential as prepaid interest, amortised over 3 years
CRecognise loan receivable at present value ≈ ₹7.51 lakh; recognise the differential (₹2.49 lakh) as a DEEMED CAPITAL CONTRIBUTION (added to investment in subsidiary)
DRecognise loan receivable at present value of ₹7.51 lakh; recognise differential ₹2.49 lakh as a gain in P&L
Answer & Solution
Correct answer: C. Recognise loan receivable at present value ≈ ₹7.51 lakh; recognise the differential (₹2.49 lakh) as a DEEMED CAPITAL CONTRIBUTION (added to investment in subsidiary)
Below-market inter-company loan from parent to subsidiary: parent recognises loan at PV at market rate (₹7.51L), and the differential ₹2.49L reflects a deemed equity contribution to the subsidiary — added to "Investment in subsidiary" (not P&L). Subsidiary's books: liability at ₹7.51L, equity (capital contribution received) ₹2.49L. Interest then accrues at 10% on the amortised-cost loan. CFS: intra-group, eliminated.
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