How to record a loan at amortized cost
Initial recognition of a loan given to a third party where the business model is to collect contractual cash flows consisting solely of payments of principal and interest.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Loans Receivable | Asset | 50,000.00 | - |
| Cash | Asset | - | 50,000.00 |
💡 Accountant's Note
Under IFRS 9, financial assets are measured at amortized cost if they meet the business model test (held to collect) and the SPPI test (solely payments of principal and interest).
Practitioner & Systems Framework
💻 ERP Architecture
Set up the financial instrument in the loan management subledger to automatically calculate the effective interest rate.
⚠️ Audit Flags
Lack of SPPI test documentation for complex interest clauses or leverage features.
📄 Required Documentation
Executed loan agreement, business model assessment, and cash flow schedule.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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