04-02-2010, 06:45 PM
Dear
Treatment is very simple to the extent of cash settlement and I guess there is no input required.
Regarding the part payment through marketable securities, it may be more advisable to sell the securities in open market, generate cash and pay off interest. To me this looks more transparent.
Yet; if you need to make a payment in specie, you will have to value the marketable securities at fair value on the date and time of settlement, settle them (at such fair value) against equal portion of interest and the realized fair value gain or loss will be booked in profit and loss.
Say, your securities' carrying value was Rs. 100 and on the date of settlement their fair value was Rs. 120. For simplicity we assume that the outstanding interest (payable) at such date was also Rs 120. [I assume interest has already been accrued as expense and the payable balance is outstanding].
You will pass following accounting entry
... Interest Payable (DEBIT) Rs. 120
............... Marketable securities at carrying amount (CREDIT) Rs. 100
............... Gain on sale (i.e. settlement) of marketbale securities (CREDIT) Rs. 20
I hope you will get what I tried to convey.
(Time for Jummah prayer. Bye Bye....)
Regards,
Kamran.
Treatment is very simple to the extent of cash settlement and I guess there is no input required.
Regarding the part payment through marketable securities, it may be more advisable to sell the securities in open market, generate cash and pay off interest. To me this looks more transparent.
Yet; if you need to make a payment in specie, you will have to value the marketable securities at fair value on the date and time of settlement, settle them (at such fair value) against equal portion of interest and the realized fair value gain or loss will be booked in profit and loss.
Say, your securities' carrying value was Rs. 100 and on the date of settlement their fair value was Rs. 120. For simplicity we assume that the outstanding interest (payable) at such date was also Rs 120. [I assume interest has already been accrued as expense and the payable balance is outstanding].
You will pass following accounting entry
... Interest Payable (DEBIT) Rs. 120
............... Marketable securities at carrying amount (CREDIT) Rs. 100
............... Gain on sale (i.e. settlement) of marketbale securities (CREDIT) Rs. 20
I hope you will get what I tried to convey.
(Time for Jummah prayer. Bye Bye....)
Regards,
Kamran.
