Recognition of Interest Accrual on Borrowings Classified as NPA Under Ind AS 109
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- Last Updated on 5 December, 2023
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Para B3.3.1 of Ind AS 109, Financial Instruments, states that a financial liability (or part of it) is extinguished when the debtor either:
(a) discharges the liability (or part of it) by paying the creditor, normally with cash, other financial assets, goods, or services; or
(b) is legally released from primary responsibility for the liability (or part of it) either by process of law or by the creditor. (if the debtor has given a guarantee this condition may still be met)
Due to non-payment of interest on a loan account, a bank has classified a company’s loan account as a Non-performing Asset and has stopped charging interest on such account. Whether non-recognition of interest in the books of the bank can be considered as an extinguishment of financial liability and the company shall discontinue the recognition of the accrual of interest expense while calculating the amortized cost of borrowing. To know the correct treatment under the company’s books.
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