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IAS 39 treatment for advances to employees - Printable Version

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IAS 39 treatment for advances to employees - golgi - 12-02-2009


I have the following queries regarding Advances given to employees.

our company gives interest free loan to employee for motorcycles please tell me the accounting entries that should be passed in order to fulfill the requirements of IAS 39, so please answer the following example;

Company X has given an interest free loan of amounting Rs. 20,000 to Mr. A for motorcycle; Mr. A will return this loan by paying 250 per month. Company's effective cost of borrowing is 10% P.a.

I shall be extremely thankful for early response.

- kamranACA - 12-03-2009


IFRSs are not supposed to be applied on immaterial items. I am of the view that if loans given to employees in aggregate do not make up a material figure then you should state them at cost (carrying amount) with a disclosure that fair valuation under IAS 39 has not been done due to immaterial amounts.

However, if you feel like doing so t every cost, following accounting enteries will be passed

At the time of disbursement of loan

First entry

....Loan account (debit)
.........Cash/bank account (credit)

(at actual disbursement amount)

Secodn entry

....Finance cost (debit)
..........Loan account (credit)

(this entry will be made for the fair value effect over 6.67 years (Rs 3000 per yer) period discounted at 10 percent that is assumed to be open market rate)

At the end of first reporting period

......Loan account (debit)
.............Other operating income (credit)

This entry will be passed at each reporting period to proportionately reverse the fair value loss booked above (in second entry) over the entire period of loans i.e. 6.67 years approxmately.
This entry will bring the complete balance of Loan account back over the entire period.

When recovery is made

......Cash/bank account (debit)
..............Loan account (credit)

Sometimes loan recoveries are adjusted against Salaries Payable accounts and not settled in cash. In such situation last entry may be modified accordingly.

If you know how the figures will arrive at, let me know. This will require a bit of calculation of fair value and preparation of an amortization schedule.

I hope you can do it at your own.



- golgi - 12-03-2009

Thanx a lot

I shall be very thankful to you if you provide me the detail calculation of your suggested answer.

- kamranACA - 12-04-2009


I have prepared the valuation model in excel sheet. It took almost 15-20 minutes since the model was already in place and, change of a few inputs, done the job. However, it cannot be pasted here.

I recommend the moderators to give an option of uploading files as attachments, if it can be possible. This may be done by allocating a separate sub-froum or place where members can upload such files for others to use without going to personalized email addresses.

For the time being send me your e-mail address and I will send you valuation model and accounting entries in return.



- golgi - 12-05-2009

- kamranACA - 12-05-2009


The fair valuation methodlogy, present value amortization model and accounting entries for 7 years have been emailed to you.

People at general (except fresh qualified ones and the professionals in practice) don't know how to do this under IAS-39. So keep it as an informational asset though it is a very small exercise.



- mrafaykhan - 12-10-2009

Dear Kamran Bhai,
Kindly send that excel file at my id

Kind Regards,
Muhammad Rafay

- ARSH - 11-09-2011

Dear Kamran bhai,
kindly mail the file at I shall be highly obliged.

- Information Consultant - 11-11-2011

Dear Kamran
Pls send at

- hassan22 - 11-28-2011

Dear Kamran bhai
please also give me this favour

RE: IAS 39 treatment for advances to employees - adnansiddiqui12 - 10-09-2014

Dear Kamran

Kindly also send me the file at

Thanks & regards

RE: IAS 39 treatment for advances to employees - genius007ufo - 01-27-2015

Can you please send it on the following