IFRS treatment for an interest rate floor in a long term loan agreement?

Question

We have obtained a $1.5M loan on floating interest rates from a local bank repayable in 10 years. However as per the loan agreement there is an interest rate floor (minimum interest rate). I just wonder what will be the implications of this rate floor in terms of IFRS requirements.

Answer 1

Interest rate floor agreement is treated as an embedded derivative where the loan agreement is the host contract under IAS39. Such a derivative need not be accounted for interest rate floor separately and but only the bank loan is accounted for initially at fair value and subsequently at amortized cost. Hope you understood my answer.