Appendix

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Renegotiating loan contracts under FRS 102

Appendix to the ICAEW Know-How guide 'Renegotiating loan contracts under FRS 102'.

Example 1

Date	Original cash flows £'000	Revised cash flows from date of modification, including arrangement fee £'000
1 January 20X1	5,000 inflow*
	100 outflow*
31 December 20X1	400 outflow*	40 outflow
31 December 20X2	400 outflow*	550 outflow
31 December 20X3	400 outflow*	550 outflow
31 December 20X4	5,400 outflow*	550 outflow
31 December 20X5		550 outflow
31 December 20X6		5,550 outflow
*Cash flows that do not occur due to the modification

The cash outflows over the life of the loan, over and above the repayment of the initial £5m capital, is £3.290m.

Date	Revised cash flows from date of modification, incl. arrangement fee £'000	Discount factor at original effective interest rate of 8.61% £'000	Present value £'000
31 December 20X1 (date of modification)	40	1/1.0861⁰	40
31 December 20X2	550	1/1.0861¹	506
31 December 20X3	550	1/1.0861²	466
31 December 20X4	550	1/1.0861³	429
31 December 20X5	550	1/1.0861⁴	395
31 December 20X6	5,550	1/1.0861⁵	3,672
		Total	5,508

Date	Revised cash flows from date of modification, excl. arrangement fee £'000	Discount factor at original effective interest rate of 8.61%	Present value £'000
31 December 20X2	550	1/1.0861¹	506
31 December 20X3	550	1/1.0861²	466
31 December 20X4	550	1/1.0861³	429
31 December 20X5	550	1/1.0861⁴	395
31 December 20X6	5,550	1/1.0861⁵	3,672
		Total	5,468

Year ended 31 December 20X1	£’000	£’000
Dr Cash at bank	4,900
Cr Loan payable		4,900
being initial recognition of loan

Dr Profit or loss – interest expense	422
Cr Loan payable		422
being recognition of interest expense under amortised cost method

Dr Loan payable	400
Cr Cash at bank		400
being annual repayment

Dr Loan payable	4922
Dr Profit or loss – loss on modification	78
Cr Loan payable		4,960
Cr Cash at bank		40
being derecognition of old loan and recognition of ‘new’ loan at date of modification

Year ended 31 December 20X2, with similar entries in 20X3 to 20X6	£’000	£’000
	Dr Profit or loss – interest expense	557
Cr Loan payable		557
being recognition of interest expense under the amortised cost method

Dr Loan payable	550
Cr Cash at bank		550
being annual repayment

Year ended 31 December 20X1	£’000	£’000
Dr Cash at bank	4,900
Cr Loan payable		4,900
being initial recognition of loan

Dr Profit or loss – interest expense	422
Cr Loan payable		422
being recognition of interest expense under the amortised cost method

Dr Loan payable	400
Cr Cash at bank		400
being annual repayment

Dr Profit or loss – loss on modification	546
Cr Loan payable		546
being recognition of loss on remeasurement at date of modification

Dr Profit or loss – expense	40
Cr Cash at bank		40
being recognition of modification arrangement fee

Year ended 31 December 20X2, with similar entries in 20X3 to 20X6	£’000	£’000
Dr Profit or loss – interest expense	471
Cr Loan payable		471
being recognition of interest expense under the amortised cost method

Dr Loan payable	550
Cr Cash at bank		550
being annual repayment

Date	Original cash flows £'000	Revised cash flows from date of modification, including arrangement fee £'000
1 January 20X1	5,000 inflow
	100 outflow
31 December 20X1	400 outflow	40 outflow
31 December 20X2	400 outflow*	200 outflow
31 December 20X3	400 outflow*	200 outflow
31 December 20X4	5,400 outflow*	5,200 outflow
*Cash flows that do not occur due to the modification

The cash outflows over the life of the loan, over and above the repayment of the initial £5m capital, is £1.140m.

Date	Revised cash flows from date of modification £'000	Discount factor at original effective interest rate of 8.61%	Present value £'000
31 December 20X1 (date of modification)	40	1/1.0861⁰	40
31 December 20X2	200	1/1.0861¹	184
31 December 20X3	200	1/1.0861²	170
31 December 20X4	5,200	1/1.0861³	4,059
		Total	4,453

Date	Revised cash flows from date of modification £'000	Discount factor at original effective interest rate of 8.61%	Present value £'000
31 December 20X2	200	1/1.0861¹	184
31 December 20X3	200	1/1.0861²	170
31 December 20X2	5,200	1/1.0861³	4,059
		Total	4,413

Year ended 31 December 20X1	£’000	£’000
Dr Cash at bank	4,900
Cr Loan payable		4,900
being initial recognition of loan

Dr Profit or loss – interest expense	422
Cr Loan payable		422
being recognition of interest expense under amortised cost method

Dr Loan payable	400
Cr Cash at bank		400
being annual repayment

Dr Loan payable	4922
Dr Profit or loss – loss on modification	78
Cr Loan payable		4,960
Cr Cash at bank		40
being derecognition of old loan and recognition of ‘new’ loan at date of modification

Year ended 31 December 20X2, with similar entries in 20X3 to 20X4	£’000	£’000
Dr Profit or loss – interest expense	213
Cr Loan payable		213
being recognition of interest expense under the amortised cost method

Dr Loan payable	200
Cr Cash at bank		200
being annual repayment

Year ended 31 December 20X1	£’000	£’000
Dr Cash at bank	4,900
Cr Loan payable		4,900
being initial recognition of loan

Dr Profit or loss – interest expense	422
Cr Loan payable		422
being recognition of interest expense under the amortised cost method

Dr Loan payable	400
Cr Cash at bank		400
being annual repayment

Dr Loan payable	509
Cr Profit or loss – gain on modification		509
being recognition of gain on remeasurement at date of modification

Dr Profit or loss – expense	40
Cr Cash at bank		40
being recognition of modification arrangement fee

Year ended 31 December 20X2, with similar entries in 20X3 to 20X4	£’000	£’000
Dr Profit or loss – interest expense	380
Cr Loan payable		380
being recognition of interest expense under the amortised cost method

Dr Loan payable	200
Cr Cash at bank		200
being annual repayment