Decide whether the asset continues before recalculating it
For a financial asset measured at amortised cost that continues to be recognised after contractual cash flows are renegotiated, Ind AS 109 paragraph 5.4.3 requires a new gross carrying amount based on the present value of the modified contractual flows. Compare it with the pre-modification gross carrying amount and recognise the modification gain or loss in profit or loss. This article assumes a documented non-derecognition conclusion. Do not transplant the quantitative test prescribed for financial liabilities into the asset conclusion as an automatic rule.
Read the applicable text: MCA: Ind AS 109, paragraphs 5.4.3, 5.5.12 and B5.5.25–B5.5.27.
Retain the original discount-rate basis
For an ordinary instrument within the examples, discount the revised contractual schedule at the original effective interest rate. Use the original credit-adjusted effective interest rate for purchased or originated credit-impaired assets, or the revised effective interest rate under paragraph 6.5.10 when applicable. Separately identify costs and fees incurred: paragraph 5.4.3 requires them to adjust the carrying amount and to be amortised over the remaining term. The illustrations assume no fees, no benchmark-reform exception and annual compounding.
Rebuild the schedule from the enforceable amendment
Record the effective amendment date and compare old and revised amounts, contractual payment dates, grace periods and any concessions. Distinguish a changed contractual flow from delayed collection without an enforceable modification. Include each payment once, with an appropriate discount interval. The gross carrying amount excludes the loss allowance; comparing a recalculated gross value with the old net value distorts the modification result.
Reassess impairment without resetting credit history
Under paragraph 5.5.12, for a modified asset that was not derecognised, compare reporting-date default risk under the modified terms with initial-recognition default risk under the original terms when assessing significant increase in credit risk. Do not infer a return to lower credit risk solely because terms were revised. Reconcile the modification amount, the separately measured allowance and net carrying amount. Document subsequent interest recognition under the applicable gross or net basis; the simple example assumes no credit impairment.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: One-year concession
Before modification, gross carrying amount is ₹100,000. The revised single amount due in one year is ₹99,000. At the original 10% effective rate the present value is ₹90,000, giving a ₹10,000 modification loss.
Illustrative example 2: Timing changes with no nominal concession
A remaining ₹110,000 payment moves from one year to two years after the modification date. With a pre-modification gross balance of ₹100,000 and an original rate of 10%, the revised present value is ₹90,909.09 and the loss is ₹9,090.91, rounded to paise.
Illustrative example 3: Two revised instalments
The amended contract pays ₹55,000 in year one and ₹60,500 in year two. At 10%, both present values are ₹50,000, giving ₹100,000. Against a pre-modification gross balance of ₹100,000 there is no modification gain or loss on these assumptions.
Illustrative example 4: Positive modification result
Against a pre-modification gross balance of ₹100,000, a revised ₹121,000 payment in one year discounts at 10% to ₹110,000. Assuming the asset remains recognised, the modification gain is ₹10,000.
Illustrative example 5: Separate loss allowance
Immediately before modification, gross carrying amount is ₹100,000 and the loss allowance is ₹8,000. Modified contractual flows have a present value of ₹90,000; the independently reassessed allowance is ₹12,000. Modification loss is ₹10,000, the allowance increases ₹4,000, and net carrying amount falls from ₹92,000 to ₹78,000.
Illustrative example 6: Rebuild interest after modification
A continuing non-credit-impaired asset has revised gross carrying amount ₹90,000 at the modification date and original effective rate of 10%. With no intervening receipts or fees and a ₹99,000 payment at the end of one year, interest is ₹9,000 and the gross balance just before payment is ₹99,000.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the asset and measurement category | Instrument master and classification memo. |
| 2 | Document whether derecognition occurs | Signed amendment and analysis of contractual rights. |
| 3 | Fix the modification date | Effective agreement and approval record. |
| 4 | Capture old gross carrying amount | Pre-modification ledger reconciliation. |
| 5 | List enforceable revised flows | Payment schedule and terms. |
| 6 | Verify the applicable discount rate | Original effective-rate file and exception review. |
| 7 | Calculate revised gross value and difference | Independent present-value calculation. |
| 8 | Review costs and fees separately | Support and remaining-term amortisation. |
| 9 | Reassess default risk and allowance | Original and current credit evidence. |
| 10 | Tie closing amounts to the accounts | Gross, allowance, net and profit or loss bridge. |
Sixteen practitioner FAQs
1. Does a renegotiation always create a new asset?
No. Assess derecognition before applying paragraph 5.4.3.
2. Can a liability test decide the asset analysis automatically?
No. Analyse the financial asset under its applicable requirements.
3. Which rate applies in the ordinary example?
The original effective interest rate.
4. Can the current market yield replace that rate?
Not merely because the terms changed.
5. Are there rate exceptions?
Yes. Review the specific references in paragraph 5.4.3.
6. Can a timing change alone affect measurement?
Yes. Present value can change even if the nominal cash flow is unchanged.
7. Are contractual and forecast collections the same?
No. Use modified contractual flows for the measurement and assess expected losses separately.
8. Does the original net carrying amount anchor the gain or loss?
No. Use the original gross carrying amount immediately before modification.
9. Where is the modification result recognised?
In profit or loss under paragraph 5.4.3.
10. How are costs and fees treated?
They adjust carrying amount and are amortised over the remaining term.
11. Does the amendment reset initial credit risk?
No. Apply paragraph 5.5.12 using the original initial-recognition baseline.
12. Can ECL increase even when the loan continues?
Yes. Reassess it independently.
13. Does one timely payment cure prior credit problems?
Not automatically. Review the full evidence.
14. What if the borrower merely misses a due date?
Assess impairment and verify whether the contract was actually modified.
15. What if the asset is credit-impaired?
Review the applicable rate and interest recognition requirements separately.
16. What should the reviewer be able to reproduce?
The revised cash flows, rate, gain or loss and separate allowance bridge.
Official sources
MCA: Ind AS 109, paragraphs 5.4.3, 5.5.12 and B5.5.25–B5.5.27