EXERCISES ON IAS 39

1. Provide the accounting treatment of the following loan:

a. Issue date: 1/1/2012
b. Amount: 10.000
c. Transaction costs (paid at inception): 500
d. Maturity: in 5 years
e. Amortisation plan: fixed instalment
f. Coupon: paid annually
g. Interest rate: Euribor 1y + 200 bps
h. Evolution of interest rates (known at each reporting date):

1/1/13 1/1/14 1/1/15 1/1/16 1/1/17

Euribor 1a 1,850% 2,15% 2,45% 3,15% 3,25%

2. A bank provides a 5 year loan for 1.000, issued on 1/1/2012, annual interest rate of 5%, with annual coupons
consisting solely of interests and outstanding debt reimbursed entirely at maturity. In 2014 the borrower
experiences objectives difficulties: the bank impairs the loan, expecting to recover only 500 at maturity. Imagine
that, quite unexpectedly, during 2015 the loan performs again and is restructured leading to the original
payment of interests and principal at maturity. Provide the accounting treatment.

3. Provide the income statement of the following bank (assuming the IAS/IFRS structure required by the Italian
supervisor). All operations have competence in the accounting year except when stated otherwise.
a. Interest income is earned on securities held for 18.000
b. Interest expenses are incurred on financial liabilities for 6.500
c. Fee and commission income is earned for 5.000
d. Fee and commission expenses are incurred for 1.000
e. Dividends on participating interest measured with the equity method are cashed for 1.000
f. Dividends on other equity investments are cashed for 200 and on UCITS for 300
g. Net gains from trading of securities are obtained for 500
h. Financial liabilities measured at fair value experience a loss of 700
i. Hedging derivatives on risks other than interest rate risks experience a fair value gain for 1.000, whereas
the related change in fair value of hedged assets is negative for 1.100
j. Gains on selling of available for sale assets are 800
k. The fair value change and result on financial assets and liabilities at FV in P/L is negative for 200
l. The amortised cost on sovereign bonds held to maturity increases by 2.000
m. Impairment of loans is 4.000, of assets available for sale for 1.000, of goodwill for 600
n. Negative margins are incurred on trading derivatives on interest rates (IRS) for 1.500
o. Premiums on trading derivatives (on credit risks) written are cashed for 1.000
p. Administrative expenses are incurred for 10.000
q. Provisions for legal claims are as high as 500, whereas the related provisions are used for 700 in the
accounting year to reduce losses incurred
r. Losses, net of gains, on participating interests in subsidiaries and associates not measured with the
equity method are 200
s. Income taxes are incurred on 1.000
t. Minority interests of the profit/loss for the accounting year are 100
 SOLUTIONS

1.
Amortisation plan 31/12/2012:
2012 IR Principal Interests Instalment Outst. Debt
01/01/2012 10.000,00
01/01/2013 3,85% 1.851,81 385,00 2.236,81 8.148,19
01/01/2014 1.923,11 313,71 2.236,81 6.225,08
01/01/2015 1.997,15 239,67 2.236,81 4.227,93
01/01/2016 2.074,04 162,78 2.236,81 2.153,89
01/01/2017 2.153,89 82,92 2.236,81 0,00

IRR 31/12/2012:
2012 Cashflows IR PV
01/01/2012 - 9.500,00 5,699% - 9.500,00
01/01/2013 2.236,81 2.116,22
01/01/2014 2.236,81 2.002,12
01/01/2015 2.236,81 1.894,18
01/01/2016 2.236,81 1.792,05
01/01/2017 2.236,81 1.695,43
0,00

Amortised cost 31/12/2012:

2012 IR nominal IR effective Principal Interests Amortised cost
01/01/2012 9.500,00
01/01/2013 385,00 541,38 1.851,81 156,38 7.804,57
01/01/2014 313,71 444,76 1.923,11 131,06 6.012,51
01/01/2015 239,67 342,64 1.997,15 102,97 4.118,34
01/01/2016 162,78 234,69 2.074,04 71,92 2.116,22
01/01/2017 82,92 120,60 2.153,89 37,67 0,00

Amortisation plan al 31/12/2013:

2013 IR Principal Interests Instalment Outst. Debt
01/01/2012 10.000,00
01/01/2013 3,85% 1.851,81 385,00 2.236,81 8.148,19
01/01/2014 4,15% 1.914,54 338,15 2.252,68 6.233,65
01/01/2015 1.993,99 258,70 2.252,68 4.239,66
01/01/2016 2.076,74 175,95 2.252,68 2.162,92
01/01/2017 2.162,92 89,76 2.252,68 0,00

IRR 31/12/2013:
2013 Cashflows IR PV
01/01/2012 6,007%
01/01/2013 - 7.804,57 - 7.804,57
01/01/2014 2.252,68 2.125,04
01/01/2015 2.252,68 2.004,62
01/01/2016 2.252,68 1.891,03
01/01/2017 2.252,68 1.783,88
0,00

Amortised cost 31/12/2013:

2013 IR nominal IR effective Principal Interests Amortised cost
01/01/2012 9.500,00
01/01/2013 385,00 541,38 1.851,81 156,38 7.804,57
01/01/2014 338,15 468,81 1.914,54 130,66 6.020,69
01/01/2015 258,70 361,65 1.993,99 102,96 4.129,66
01/01/2016 175,95 248,06 2.076,74 72,12 2.125,04
01/01/2017 89,76 127,65 2.162,92 37,89 0,00
Amortisation plan 31/12/2014:
2014 IR Principal Interests Instalment Outst. Debt
01/01/2012 10.000,00
01/01/2013 3,85% 1.851,81 385,00 2.236,81 8.148,19
01/01/2014 4,15% 1.914,54 338,15 2.252,68 6.233,65
01/01/2015 4,45% 1.988,10 277,40 2.265,50 4.245,55
01/01/2016 2.076,57 188,93 2.265,50 2.168,98
01/01/2017 2.168,98 96,52 2.265,50 0,00

IRR 31/12/2014:
2014 Cashflows IR PV
01/01/2012 6,314%
01/01/2013
01/01/2014 - 6.020,69 - 6.020,69
01/01/2015 2.265,50 2.130,95
01/01/2016 2.265,50 2.004,39
01/01/2017 2.265,50 1.885,35
0,00

Amortised cost 31/12/2014:

2014 IR nominal IR effective Principal Interests Amortised cost
01/01/2012 9.500,00
01/01/2013 385,00 541,38 1.851,81 156,38 7.804,57
01/01/2014 338,15 468,81 1.914,54 130,66 6.020,69
01/01/2015 277,40 380,15 1.988,10 102,75 4.135,34
01/01/2016 188,93 261,11 2.076,57 72,18 2.130,95
01/01/2017 96,52 134,55 2.168,98 38,03 0,00

Amortisation plan 31/12/2015:

2015 IR Principal Interests Instalment Outst. Debt
01/01/2012 10.000,00
01/01/2013 3,85% 1.851,81 385,00 2.236,81 8.148,19
01/01/2014 4,15% 1.914,54 338,15 2.252,68 6.233,65
01/01/2015 4,45% 1.988,10 277,40 2.265,50 4.245,55
01/01/2016 5,15% 2.069,49 218,65 2.288,13 2.176,06
01/01/2017 2.176,06 112,07 2.288,13 0,00

IRR 31/12/2015:
2015 Cashflows IR PV
01/01/2012 7,353%
01/01/2013
01/01/2014
01/01/2015 - 4.116,85 - 4.116,85
01/01/2016 2.288,13 2.131,41
01/01/2017 2.288,13 1.985,43
0,00

Amortised cost 31/12/2015:

2015 IR nominal IR effective Principal Interests Amortised cost
01/01/2012 9.500,00
01/01/2013 385,00 541,38 1.851,81 156,38 7.804,57
01/01/2014 338,15 468,81 1.914,54 130,66 6.020,69
01/01/2015 277,40 361,65 1.988,10 84,26 4.116,85
01/01/2016 218,65 302,70 2.069,49 84,05 2.131,41
01/01/2017 112,07 156,72 2.176,06 44,65 0,00
Amortisation plan 31/12/2016:
2016 IR Principal Interests Instalment Outst. Debt
01/01/2012 10.000,00
01/01/2013 3,85% 1.851,81 385,00 2.236,81 8.148,19
01/01/2014 4,15% 1.914,54 338,15 2.252,68 6.233,65
01/01/2015 4,45% 1.988,10 277,40 2.265,50 4.245,55
01/01/2016 5,15% 2.076,57 188,93 2.265,50 2.168,98
01/01/2017 5,25% 2.168,98 113,87 2.282,85 0,00

IRR 31/12/2016:
2016 Cashflows IR PV
01/01/2012 8,778%
01/01/2013
01/01/2014
01/01/2015
01/01/2016 - 2.098,64 - 2.098,64
01/01/2017 2.282,85 2.098,64
0,00

Amortised cost 31/12/2016:

2016 IR nominal IR effective Principal Interests Amortised cost
01/01/2012 9.500,00
01/01/2013 385,00 541,38 1.851,81 156,38 7.804,57
01/01/2014 338,15 468,81 1.914,54 130,66 6.020,69
01/01/2015 277,40 361,65 1.988,10 84,26 4.116,85
01/01/2016 188,93 247,29 2.076,57 58,37 2.098,64
01/01/2017 113,87 184,21 2.168,98 70,34 0,00

2.
Amortisation plan and IRR 31/12/2012:
2012 Cashflows IR PV
01/01/2012 - 1.000,00 5% - 1.000,00
01/01/2013 50,00 47,62
01/01/2014 50,00 45,35
01/01/2015 50,00 43,19
01/01/2016 50,00 41,14
01/01/2017 1.050,00 822,70
0,00

Amortised cost 31/12/2012:

2012 Int. nominal Int. effective Principal Interests Amortised cost
01/01/2012 1.000,00
01/01/2013 50,00 50 0 0,00 1.000,00
01/01/2014 50,00 50 0 0,00 1.000,00
01/01/2015 50,00 50 0 0,00 1.000,00
01/01/2016 50,00 50 0 0,00 1.000,00
01/01/2017 50,00 50 1.000,00 0,00 0,00

Present value at 31/12/2014 will be changed accordingly to impairment based on the following:
- Original AC on 31/12/2014: 1000
- New AC: 400 x (1+5%)^(-2)=453.51
- Impairment: 453.51-1000=546.49
AC for 2015 will be 453.51 x 1.05 = 476.19, with effective IR in IS and BS for 453.51 x 5% = 22.68
AC for 2016 will be 476.19 x 1.05 500 = 0, with effective IR in IS and BS for 476.19 x 5% = 23.81

In 2105 the bank will write-back the impairment, based on the following:
- Original AC on 31/12/2015 = 476.19
- New AC: 1050 / 1.05 = 1000
- Write-back: 1000 - 476.19 = 523.81
In 2016 the amortization plan will be restored at its original values.
3.

10 Interest income and similar revenues 20.000

20 Interest expense and similar charges -8.000
30 Net interest margin 12.000
40 Fee and commission income 6.000
50 Fee and commission expense -1.000
60 Net fees and commissions 5.000
70 Dividend income and similar revenue 500
80 Gains and losses on financial assets and liabilities held for trading -200
90 Fair value adjustments in hedge accounting -100
Gains and losses on disposal of loans, available for sale financial
100 assets, held to maturity investments and financial liabilities 800
Gains and losses on financial assets/liabilities at fair value through
110 profit or loss -200
120 Operating income 17.800
130 Impairment losses on: -5.000
a) Loans -4.000
b) Available for sale financial assets -1.000
140 Net profit from financial activities 12.800
Administrative costs for staff expenses and other administrative
180 expenses -10.000
190 Provisions for risks and charges 200
230 Operating costs -9.800
240 Profit (loss) of associates -200
260 Impairment of goodwill -600
280 Total profit or loss before tax from continuing operations 2.200
Tax expense (income) related to profit or loss from continuing
290 operations -1.000
320 Net profit or loss for the year 1.200
330 Minority interests 100
340 Profit (loss) attributable to the parent company 1.100