[GNC] Accounting of loan intended to be paid at the later date by non financial assets

[Jason Seegers]

This would largely depend on which GAAP you are following. You are quoting Rs which I assume means Rupees and therefore Indian GAAP, which I have zero knowledge of.

Under IFRS / US GAAP, you need to look at the substance of the transaction.

1. you have a loan
2. you are settling via an asset
3. finance costs need to be factored in at a market rate
4. you are not selling goods

Your scenario is complex and also has tax implications. I will provide a very brief explanation of accounting treatment only but you need to speak to your accountant. This is more of a support forum vs an accounting advice forum.

Dr bank and Cr loan upon receipt of funds

Dr interest (PL) and Cr loan based on a future value settlement calculation of the loan at a market related interest rate or weighted average cost of capital of your business. Future value appears to be Rs 1.15m per your message.

When you purchase the gold, recognise it as inventory raw material. During manufacture, it would be considered WIP. After manufacture complete, it would be considered finished goods. Cost to manufacture is capitalised to the cost of the asset.

Upon settlement of the loan, you would simply Dr loan and Cr finished goods with the agreed value. This does not go to revenue and cost of goods sold because the nature of the transaction is that you are settling a loan balance and should be treated the same way as you would a bank loan ie when you receive money from the bank, it isn’t income and when you repay via cash, you don’t recognise it as an expense.

Presumably your business is generating income which would be recognised as income and cost of goods sold. This is not part of that.

Interest expense is recognised in the PL for this loan.

As you can see, this is not simple and so you should speak to your accountant.

________________________________
From: gnucash-user <gnucash-user-bounces+jason.online=outlook.com at gnucash.org> on behalf of Paras Desai <DesaiParas at outlook.com>
Sent: Sunday, November 10, 2024 06:31
To: gnucash-user at gnucash.org <gnucash-user at gnucash.org>
Subject: [GNC] Accounting of loan intended to be paid at the later date by non financial assets

Hello All,

I have a user case for which I seek advice for both accounting principle point of view as well for posting in GNUCASH.

I receive a loan of say Rs. 1 million in current day. With the condition that it will be paid back by non financial asset at the end of the 12  months, by way of say Rs. 1.15 million worth of gold jwelery. (valuation of jaellery comprises of cost of gold and cost of making and designing jewellery)

What would  be accounting treatment for this transaction, as an accounting principle and in gnucash.

I am thinking following in principle...

Dr bank (assets) :  1 million
Cr lender (liability) : 1 million

Cr lender ( liability) : 0.15 mill (interest)
Dr interest expense : 0.15 milllion

Dr  gold purchase (assets) : 0.95 mill
Dr jewelery mfg expense ; 0.05 mill
Cr bank (assets) : 1 mill

Cr Sale (to lender) : 1.15 million
Dr creditor (lender) : 1.15 million

Cr jewellery ( assets) :  1 million (0.95 mill gold cost plus 0.05 mill manufacturing cost)
Dr COGS (expense) : 1 million

Is there any better way for accounting!



A help will be very much appreciated

Thanks
Paras
_______________________________________________
gnucash-user mailing list
gnucash-user at gnucash.org
To update your subscription preferences or to unsubscribe:
https://gbr01.safelinks.protection.outlook.com/?url=https%3A%2F%2Flists.gnucash.org%2Fmailman%2Flistinfo%2Fgnucash-user&data=05%7C02%7C%7C417569f32a26403b12f508dd0183a61d%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C638668387125709416%7CUnknown%7CTWFpbGZsb3d8eyJFbXB0eU1hcGkiOnRydWUsIlYiOiIwLjAuMDAwMCIsIlAiOiJXaW4zMiIsIkFOIjoiTWFpbCIsIldUIjoyfQ%3D%3D%7C0%7C%7C%7C&sdata=4uVykLz3gAz%2BMo6yAptEKVnYMKnxP7PKWtX7GPqIdGU%3D&reserved=0<https://lists.gnucash.org/mailman/listinfo/gnucash-user>
-----
Please remember to CC this list on all your replies.
You can do this by using Reply-To-List or Reply-All.