ACo, an offshore company, makes non-interest bearing loans of $10m in FY00, to ZCo a related entity in a tax paying jurisdiction. Repayment terms are 5 equal annual installments from FY05, ending FY10.

Whilst i agree that one would generally FV the loan by discounting the future receivables to PV using market rates, what would one do with the difference between the PV (say $8m) and the $10m? I think one would immediately recognise that “unearned interest” of $2m in the income statement as a Dr, and in future years recognise the PV would accrete back to $10m, with the income statement credited with interest receivable for the FV movements?

Or would you recognise unearned interest receivable on the balance sheet?